SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1994, Commission File Number 0-13425
PREMIER FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its Charter)
Delaware 36-2852290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 W. Main Street 61032
Freeport, Illinois (Zip Code)
(Address of Principal executive
offices)
Registrant's telephone number, including area code (815) 233-3671
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5.00 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in the definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Aggregate market value of voting stock held by non-affiliates of the
registrant as of February 28, 1995, based upon the average bid and asked
price at this date: $40,573,736.00
At February 28, 1995, the registrant had outstanding 6,522,178 shares
of its common stock, $5.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders are incorporated by
reference into Part II of the Form 10-K. Portions of the Proxy Statement
for Registrant's 1995 Annual Meeting of Shareholders to be held April 27,
1995 has been incorporated by reference into Part III of the Form 10-K.
No. of Pages Sequentially Numbered: 27
Exhibit Index is on Page 26
Part I
Item 1. Business
Premier Financial Services, Inc. (the "Company") is a registered
bank holding company organized in 1976 under Delaware law. The
operations of the Company and its subsidiaries consist primarily of
those financial activities, including trust and investment services,
common to the commercial banking industry. Unless the context
otherwise requires, the term "Company" as used herein includes the
Company and its subsidiaries on a consolidated basis. Substantially
all of the operating revenue and net income of the Company is
attributable to its subsidiary banks.
The primary function of the Company is to coordinate the banking
policies and operations of its subsidiaries in order to improve and
expand their services and effect economies in their operations by
joint efforts in certain areas such as auditing, training, marketing,
and business development. The Company also provides operational and
data processing services for its subsidiaries. All services and
counsel to subsidiaries are provided on a fee basis, with fees based
upon fair market value.
The Company's banking subsidiaries include First Bank North
("FBN"), First Bank South ("FBS"), First National Bank of Northbrook
("FNBN") and First Security Bank of Cary Grove ("FSBCG"). Although
chartered as commercial banks, the offices of the banks serve as
general sales offices providing a full array of financial services and
products to individuals, businesses, local governmental units and
institutional customers throughout northern Illinois. Banking
services include those generally associated with the commercial
banking industry such as demand, savings and time deposits, loans to
commercial, agricultural and individual customers, cash management,
electronic funds transfers and other services tailored for the client.
The Company has banking offices located in Freeport, Stockton, Warren,
Mt. Carroll, DeKalb, Dixon, Rockford, Polo, Sterling, Northbrook,
Riverwoods and Cary, Illinois.
Premier Trust Services, Inc., ("PTS") a wholly owned subsidiary
of FBN, provides a full line of fiduciary and investment services
throughout the Company's general market area. Premier Insurance
Services, Inc., also a wholly owned subsidiary of FBN, is a full line
casualty and life insurance agency.
Premier Operating Systems, Inc., ("POS") a direct subsidiary of
the Company, provides data processing and operational services to the
Company and its subsidiaries.
Competition
Active competition exists in all principal areas where the Company and its
subsidiaries are engaged, not only with commercial banking organizations, but
also with savings and loan associations, finance companies, mortgage companies,
credit unions, brokerage houses and other providers of financial services. The
Company has seen the level of competition and number of competitors in its
markets increase in recent years and expects a continuation of these
aggressively competitive market conditions.
To gain a competitive market advantage, the Company relies on a strategic
marketing plan that is employed throughout the Company, reaching every level of
its sales force. The marketing plan includes the identification of target
markets and customers so that the Company's resources, both financial and
manpower, can be utilized where the greatest opportunities for gaining market
share exist. The differentiation between the Company's approach to providing
products and services to its customers and that of the competition is in the
individualized attention that the Company devotes to the needs of its customers.
This focus on fulfilling customer's financial needs generally results in long
- -term customer relationships.
Banking deposits are well balanced, with a large customer base and no
dominant accounts in any category. The Company's loan portfolio is also
characterized by a large customer base, balanced between loans to individuals,
commercial and agricultural customers, with no dominant relationships. There is
no readily available source of information which delineates the market for
financial services, including services offered by non-bank competitors, in the
company's market area.
Regulation and Supervision
Bank holding companies and banks are extensively regulated under both
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
references to the particular statutes and regulations. Any significant change
in applicable law or regulation may have an effect on the business and prospects
of the Company and its subsidiaries.
The Company is registered under and is subject to the provisions of the
Bank Holding Company Act, and is regulated by the Federal Reserve Board. Under
the Bank Holding Company Act the Company is required to file annual reports
and such additional information as the Federal Reserve Board may require and is
subject to examination by the Federal Reserve Board. The Federal Reserve Board
has jurisdiction to regulate all aspects of the Company's business.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before merging with or
consolidating into another bank holding company, acquiring substantially all the
assets of any bank or acquiring direct or indirect ownership or control of more
than 5% of the voting shares of any bank. Bank holding companies are also
prohibited from acquiring shares of any bank located outside the state in which
the operations of the holding company's banking subsidiaries are principally
conducted unless such an acquisition is specifically authorized by statute of
the state of the bank whose shares are to be acquired. On September 29, 1994,
the Reigle-Neal Interstate Banking and Branching Efficiency Act (the "Reigle-
Neal Act") became law. The Act authorizes interstate acquisitions by bank
holding companies, interstate mergers of banks, interstate bank
branching and "agency banking" with affiliate banks in different states.
There are several effective dates under the Reigle-Neal Act. Generally,
interstate acquisitions and "agency banking" are permitted as of September 29,
1995, and interstate bank mergers and interstate branching are permitted as of
June 1, 1997. However, states may "opt-in" or "opt-out" of the interstate
merger and branching provisions before June 1, 1997.
The Bank Holding Company Act also prohibits a bank holding company, with
certain exceptions, from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company which is not a bank and from
engaging in any business other than that of banking, managing and controlling
banks, or services to banks and their subsidiaries. The Company, however, may
engage in certain businesses determined by the Federal Reserve Board to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. The Bank Holding Company Act does not place territorial
restrictions on the activities of bank holding companies or their nonbank
subsidiaries.
The Company is also subject to the Illinois Bank Holding Company Act of
1957, as amended (the "Illinois Act"). Effective December 1, 1990, certain
provisions of the Illinois Act were amended to permit Illinois banks and bank
holding companies to acquire or be acquired by banks and bank holding companies
located in any state having a reciprocal law. The approval of the Commissioner
of Banks and Trusts Companies of Illinois is required to complete such an
interstate acquisition in Illinois. The Illinois Act also permits intrastate
acquisition throughout Illinois by Illinois bank holding companies.
The passage of the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") resulted in significant changes in the enforcement powers
of federal banking agencies, and more significantly, the manner in which the
thrift industry is regulated. While FIRREA's primary purpose is to address
public concern over the financial crisis of the thrift industry through the
imposition of strict reforms on that industry, FIRREA grants bank holding
companies more expansive rights of entry into "the savings institution" market
through the acquisition of both healthy and failed savings institutions. Under
the provisions of FIRREA, a banking holding company can expand its geographic
market or increase its concentration in an existing market by acquiring a
savings institution, but the bank holding company
cannot expand its product market by acquiring a savings institution.
FIRREA authorizes the Federal Reserve Board to approve applications under
Section 4(c)(8) of the Act for bank holding companies to acquire savings
associations, under certain conditions, regardless of the associations'
financial condition. Previously, under the provisions of the Garn-St. Germain
Depository Institutions Act of 1983 and subsequent Federal Reserve Board
interpretations, bank holding companies could generally acquire only failing
thrifts. Under FIRREA, they realize a significant expansion of authority.
Furthermore, bank holding companies may acquire thrifts without regard to
certain restrictions on interstate banking, as long as the thrift is operated
as a separate subsidiary. FIRREA also allows a bank holding company to merge
an acquired savings association or branch office with a bank
holding company's subsidiary bank, if the bank continues to pay insurance
assessments to the Savings Association Insurance Fund for the deposits acquired
from the savings association and if, among other conditions, the merger
complies. with current state law. On September 5, 1989, the Federal Reserve
Board promulgated a final rule amending Regulation Y to allow bank holding
companies to acquire savings associations.
On December 19, 1991, The Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted into law. In addition to providing for the
recapitalization of the Bank Insurance Fund (the"BIF"), FDICIA contains, among
other things: (i) truth-in savings legislation that requires financial
institutions to disclose terms, conditions, fees and yields on deposit accounts
in a uniform manner;
(ii) provisions that impose strict audit requirements and expand the role of
independent auditors of financial institutions; (iii) provisions that require
regulatory agencies to examine financial institutions more frequently than was
required in the past; (iv) provisions that limit the powers of state-chartered
banks to those of national banks unless the state-chartered bank meets minimum
capital requirements and the FDIC finds that the activity to be engaged in by
the state-chartered banks poses no significant risk to the BIF; (v) provisions
that require the expedited resolution of problem financial institutions; (vi)
provisions that require regulatory agencies to develop a method for financial
institutions to provide information concerning the estimated fair market value
of assets and liabilities as supplemental disclosures to the financial
statements filed with the regulatory agencies; (vii)provisions that require
regulators to consider adopting capital requirements that account for interest
rate risk; (viii) provisions that require the regulatory agencies to adopt
regulations that facilitate cross-industry transactions, and (ix) provisions
for acquisition of banks by thrift institutions.
While regulations implementing many of the provisions of FDICIA have been
issued by the federal banking agencies, regulations implementing certain
significant FDICIA requirements (including requirements for establishment of
operational and managerial standards to promote bank safety and soundness and
modification of regulatory capital standards to account for interest rate risk)
have not yet been issued in final form. Consequently, it is not possible at
this time to determine the full impact FDICIA will have on the Company and its
operations. It is expected, however, that FDICIA is likely to result in, among
other things, increased regulatory compliance costs and a
greater emphasis on capital.
The Company's Subsidiaries
FBN and FBS are State chartered, Federal Reserve member banks. They are,
therefore, subject to regulation and an annual examination by the Illinois
Commissioner of Banks and Trust Companies and by the Board of Governors of the
Federal Reserve Bank. FNBN is a nationally chartered bank and is under the
supervision of and subject to examination by the Comptroller of the Currency.
All national banks are members of the Federal Reserve System and subject to
applicable provisions of the Federal Reserve Act and to regular examination by
the Federal Reserve Bank of their district. FSBCG is a State chartered non-
member bank and is subject to regulation and an annual examination by the
Illinois Commissioner of Banks
and Trust Companies and by the Federal Deposit Insurance Corporation.
All of the Company's banks are insured by the Federal Deposit Insurance
Corporation and each bank is consequently subject to the provisions of the
Federal Deposit Insurance Act. The examinations by the various regulatory
authorities are designed for the protection of bank depositors and not for
bank or holding company stockholders.
The federal and state laws and regulations generally applicable to banks
regulate, among other things, the scope of their business, their investments,
their reserves against deposits, the nature and amount of and collateral for
loans, minimum capital requirements and the number of banking offices and
activities which may be performed at such offices.
Subsidiary banks of a bank holding company are subject to certain
restrictions under the Federal Reserve Act and the Federal Deposit Insurance
Act on loans and extensions of credit to the bank holding company or to its
other subsidiaries, investments in the stock or other securities of the bank
holding company or its other subsidiaries, or advances to any borrower
collateralized by such stock or other securities.
Capital Requirements
In December 1992, the Federal Reserve Board's final rules for risk-based capital
guidelines became effective. These guidelines establish risk-based capital
ratios based upon the allocation of assets and specified off-balance sheet
commitments into four risk-weighted categories. The guidelines require all bank
holding companies and banks to maintain a minimum Tier 1 capital to risk
weighted asset ratio of 4% and a total capital to risk weighted asset ratio of
at least 8.00%. In addition to the risk-based capital guidelines, the Federal
Reserve Board has adopted the use of a leverage ratio as an additional tool to
evaluate the capital adequacy of banks and bank holding companies. The leverage
ratio is defined to be a company's "Tier 1" capital divided by its adjusted
total assets. The Company and its banking subsidiaries meet or exceed the
regulating capital guidelines as currently defined.
Monetary Policy and Economic Conditions
The earnings of commercial banks and bank holding companies are affected
not only by general economic conditions, but also by the policies of various
governmental regulatory authorities. In particular, the Federal Reserve Board
influences conditions in the money and capital markets, which affect interest
rates and growth in bank credit and deposits. Federal Reserve Board monetary
policies have had a significant effect on the operating results of commercial
banks in the past and are expected to in the future. Also, assessments from the
Bank Insurance Fund, which insures commercial bank deposits, will continue to
impact future earnings of the company.
Employees
As of December 31, 1994, the Company and its subsidiaries had a total of
273 full-time and 65 part-time employees.
Item 2. Properties
The Company owns a two story office building at 27 West Main Street,
Freeport, Illinois which has a total of 13,900 square feet and approximately 5.5
acres of land located at the northeast corner of Lake-Cook Road and Corporate
Drive in Riverwoods, Illinois. The land in Riverwoods, Illinois was acquired in
1992 for possible future use as a branch site or denovo bank location.
FBN conducts its operations from its offices located in Freeport, Stockton,
Rockford, Warren, Mount Carroll, and DeKalb, Illinois. Its main office is
located at 101 West Stephenson Street, Freeport, Illinois and includes
approximately 26,400 square feet. In addition, two other office buildings are
attached to the bank's main office by a parking deck. One is occupied by the
Commercial Division. The other serves as a drive in facility and operations
center. All three buildings including the underlying land, are owned by the
Bank. FBN also operates a remote banking facility located approximately 1.5
miles southwest of the Bank's main office in a shopping center. The underlying
land is leased by FBN from an unaffiliated party through 1995, and the Bank has
an option to renew through 2000. The annual rental
payment for the remaining year is $6,000.
FBN's office in Mount Carroll is located at 102 E. Market Street, Mount
Carroll, Illinois, with a separate drive-in facility located at 315 N. Clay
Street (Highway 78), in Mount Carroll. The main bank building, containing
approximately 12,000 square feet, is owned by the bank as is the underlying
land. FBN occupies the main floor and most of the basement, with total square
footage of approximately 9,000 square feet. The second floor, containing
approximately 3,400 square feet, is rented to various professional
organizations. The drive-in facility is approximately one block east of the
main office. It houses the drive-in and walk-up facilities as well as a small
lobby in a building containing approximately 1,200 square feet. The
drive-in facility as well as the underlying land is owned by FBN.
FBN conducts its operations in Stockton from its quarters located at 133 W.
Front Street, Stockton, Illinois. The office at Stockton includes drive-in
facilities and is approximately 8,000 square feet. The building, underlying
land and an adjoining 9,000 square foot parking lot are owned by FBN.
FBN's office in Warren is located at 135 Main Street, Warren, Illinois.
The building, which contains approximately 9,000 square feet is owned and
occupied by the bank. The building also houses its wholly owned insurance
subsidiary, Premier Insurance Services, Inc.
FBN's Rockford office is located at 3957 Mulford Road, Rockford, Illinois.
Both the building which contains approximately 1358 square feet and underlying
land are leased from an unaffiliated party through May 1, 1999, with an option
to renew annually.
FBN's office in DeKalb is located at 301-9 East Lincoln Highway, DeKalb,
Illinois. Both the building and underlying land are leased from an unaffiliated
party through August 1995, with an option to renew annually.
FBS conducts its operations from its offices located in Dixon, Polo, and
Sterling, Illinois. Its main office is located at 102 Galena Avenue, Dixon,
Illinois. The building, which contains approximately 15,000 square feet, is
owned and occupied by the bank. The land underlying the building, as well as
an adjoining parking lot, are also owned by the bank.
FBS's office in Polo is located at 101 W. Mason St., Polo, Illinois. Drive
- -In and Walk-up facilities are part of the building. The building contains
approximately 17,000 square feet, and is owned by the bank as is the underlying
land. FBS occupies the first floor and the majority of the basement, with total
square footage of about 10,000 square feet. The remainder of the basement and
the second floor, which contain the remaining 7,000 square feet, are rented to
various professional and/or retail organizations.
FBS's Sterling office is located at 3014 E. Lincolnway, Sterling,
Illinois. Drive-in and Walk-up facilities are part of the building. The
building contains approximately 6,800 square feet. Both the building, which
is occupied solely by the bank, and the underlying land are owned by FBS.
FNBN owns the land and building on which its main office and adjacent
drive-through facility are located at 1300 Meadow Road, Northbrook, Illinois.
The two story, colonial building and drive-through facility are located on
30,318 square feet of land. The main building consists of 8,035 square feet.
This property also includes a satellite parking area with 29 parking spaces.
FNBN also owns the land and building located at 2755 West Dundee Road,
Northbrook, Illinois, which houses a full-service branch facility. The building
consists of 4,913 square feet and is located on 22,500 square feet of land.
FNBN leases 16,739 square feet for its Riverwoods branch at Milwaukee and
Deerfield Road.
FSBCG conducts its business in Cary from its main office located at Route
45 Highway 14. The main bank building containing approximately 3,500 square
feet is owned by the bank as is the 4 lane drive-through and the underlying
land. The adjoining parking lot contains 26,000 square feet of land.
FSBCG owns a second banking center at 3114 Northwest Highway, Cary,
Illinois. The building consists of 1,856 square feet, and three drive-through
lanes situated on 145,953 square feet of land.
Premier Operating Systems, Inc. conducts the majority of its operations
from a 13,000 square foot, two story office building at 110 West Stephenson
Street, Freeport, Illinois. The building and underlying land is owned by
Premier Operating Systems, Inc.
Item 3. Legal Proceedings
Neither the Company nor its subsidiaries are a party to any material legal
proceedings, other than routine litigation incidental to the business of the
banks as of December 31, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
No matters, through the solicitation of proxies or otherwise, have been
submitted to a vote of security holders for the quarter ended December 31, 1994.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The approximate number of Holders of Common Stock as of 12/31/94 was as follows:
Title of Class No. of Record Holders
Common Stock 671
($5 Par Value)
Other information required by this item is incorporated herein by
reference to the Registrant's Annual Report to its shareholders for the year
ended December 31, 1994, which is included as an exhibit to this report.
Item 6. Selected Financial Data
Incorporated herein by reference to the Registrant's Annual Report to its
shareholders for the year ended December 31, 1994, which is included as an
exhibit to this report.
On July 16, 1993, the Company acquired 100% of the common stock of First
Northbrook Bancorp, Inc. The acquisition was accounted for as a purchase
transaction; accordingly, the assets and liabilities of First Northbrook
Bancorp, Inc. were recorded at fair market value on the acquisition date and the
results of operations have been included in the consolidated statements of
earnings since July 16, 1993. For a discussion regarding the business
combination see footnote #12 on pages 16 and 17 of Registrant's Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Incorporated by reference to the Registrant's Annual Report to its
shareholders for the year ended December 31, 1994, which is included as an
exhibit to this report.
Submitted herewith is the following supplementary financial information of
the registrant for each of the last five years (Unless otherwise stated):
Distribution of Assets, Liabilities and Stockholders' Equity
Interest Rates and Interest Differential
Changes in Interest Margin for each of the last two years
Investment Portfolio
Maturities of Investments, December 31, 1994
Loan Portfolio
Loan Maturities and Sensitivity to Changes in Interest Rates,
December 31, 1994
Risk Elements in the Loan Portfolio
Summary of Loan Loss Experience
Deposits
Time Certificates and Other Time Deposits of $100,000 or more
as of December31, 1994
Return on Equity and Assets
Short Term Borrowings
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the Company, which are
included in the annual report of the registrant to its stockholders for the year
ended December 31, 1994, are submitted herewith as an exhibit, and are
incorporated by reference:
1. Consolidated Balance Sheets, December 31, 1994 and 1993
2. Consolidated Statements of Earnings, for the three years
ended December 31, 1994
3. Consolidated Statements of Changes in Stockholders' Equity
for the three years ended December 31, 1994
4. Consolidated Statements of Cash Flows for the three years
ended December 31, 1994
5. Notes to Consolidated Financial Statements
6. Independent Auditors' Report
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosures
None
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's consolidated average daily
condensed balance sheet for each of the last five years (dollar figures in
thousands):
Year Ended December 31
1990 1991 1992 1993 1994
ASSETS:
Cash & Non-interest bearing
deposits $ 16,457 $ 15,129 $ 17,162 $30,003 $ 27,316
Interest Bearing Deposits 1,701 1,114 880 1,677 12,027
Taxable Investment Securities 119,804 114,281 95,691 102,323 185,110
Non-Taxable Investment
Securities 20,102 26,200 24,374 37,038 40,498
Total Investment Securities 139,906 140,481 120,065 139,361 225,608
Trading Account Assets 386 773 2,017 --- ---
Federal Funds Sold 9,390 1,704 656 4,706 3,737
Loans (Net) 169,711 182,975 219,684 273,951 287,825
All Other Assets 17,827 16,755 17,450 32,101 46,101
TOTAL ASSETS $355,378 $358,931 $377,914 $481,799 $602,614
LIABILITIES & STOCKHOLDERS
EQUITY:
Non-Interest Bearing Deposits $ 36,437 $ 36,118 $ 38,402 $ 66,895 $ 88,594
Interest Bearing Deposits 275,436 244,253 259,271 335,510 420,530
Total Deposits 311,873 280,371 297,673 402,405 509,124
Short Term Borrowings 12,469 49,544 47,556 24,014 33,033
Long Term Debt 4,532 826 --- --- ---
All Other Liabilities
& Reserves 3,500 2,861 2,844 10,785 4,619
Stockholders' Equity 23,004 25,329 29,841 44,595 55,838
TOTAL LIABILITIES & EQUITY $355,378 $358,931 $377,914 $481,799 $602,614
INTEREST RATES AND INTEREST DIFFERENTIAL
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's interest earned or paid,
as well as the average yield or average rate paid on each of the major interest
earning assets and interest bearing liabilities for each of the last five years
(dollar figures are in thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Interest Earned:
Interest Bearing Deposits
Interest Earned $ 144 $ 94 $ 68 $ 104 $ 514
Average Yield 8.47% 8.43% 7.73% 6.20% 4.27%
Taxable Investment Securities
Interest Earned 10,234 9,387 6,691 6,077 9,929
Average Yield 8.54% 8.21% 6.99% 5.94% 5.36%
Non-Taxable Investment Securities
(taxable equivalent) (1)
Interest Earned 1,961 2,593 2,418 3,080 3,965
Average Yield 9.76% 9.89% 9.92% 8.32% 9.79%
Trading Account Assets
Interest Earned 31 58 151 --- ---
Average Yield 8.03% 7.50% 7.49% --- ---
Federal Funds Sold
Interest Earned 768 88 25 133 150
Average Yield 8.18% 5.16% 3.81% 2.83% 4.01%
Loans (Excluding Unearned
Discount & Non Accrual Loans)
(taxable equivalent) (1)
Interest & Fees Earned (2) 19,226 19,357 19,860 22,262 23,641
Average Yield (3) 11.21% 10.56% 9.06% 8.13% 8.21%
Interest Paid:
Interest Bearing Deposits
Interest Paid 18,464 14,358 11,559 11,461 13,511
Average Effective Rate Paid 6.70% 5.87% 4.46% 3.42% 3.21%
Borrowed Funds
Interest Paid 968 2,921 1,800 1,289 1,619
Average Effective Rate Paid 7.76% 5.89% 3.79% 5.37% 4.90%
Long Term Debt
Interest Paid 465 88 --- --- ---
Average Effective Rate Paid 10.26% 10.65% --- --- ---
Margin Between Rates Earned
and Rates Paid:
All Interest Earnings Assets
(taxable equivalent)
Interest & Fees Earned 32,364 31,577 29,213 31,656 38,199
Average Yield 10.02% 9.65% 8.52% 7.55% 7.24%
All Interest Bearing Liabilities
Interest Paid 19,898 17,367 13,359 12,750 15,130
Average Effective Rate Paid 6.80% 5.89% 4.35% 3.55% 3.33%
Net Interest Earned 12,466 14,210 15,854 18,906 23,069
Net Yield 3.86% 4.34% 4.62% 4.43% 4.32%
(1) Yields on tax exempt securities and loans are full tax equivalent yields at
34%.
(2) Includes fees of $255, $548, $568, $718 and $675 for 1990 through 1994
respectively.
(3) There were no material out-of-period adjustments or foreign activities for
any reportable period.
CHANGES IN INTEREST MARGIN
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's dollar amount of
change in interest earned on each major interest earning assets and the
dollar amount of change in interest paid on each major interest bearing
liabilities, as well as the portion of such changes attributable to changes
in rate and changes in volume for each of the last two years (Dollar
figures in thousands):
Increase (Decrease)
1993 over 1992 1994 over 1993
Rate Volume Rate Volume
Changes in Interest Earned:
Interest Bearing Deposits $ (16) $ 52 (42) 452
Taxable Investment Securities (1,055) 441 (644) 4,496
Non-taxable Investment Securities
(taxable equivalent) (438) 1,100 579 306
Trading Account Assets --- (151) --- ---
Fed Funds Sold (8) 116 48 (31)
Loans (net) (2,185) 4,587 224 1,155
Total $(3,702) $6,145 $ 165 6,378
Changes in Interest Paid:
Interest Bearing Deposits $(3,051) $2,953 (735) 2,785
Short Term Borrowings 581 (1,092) (121) 451
Total $(2,470) 1,861 (856) 3,236
Changes in Interest Margin $(1,232) $4,284 $ 1,021 $3,142
Changes attributable to rate/volume, i.e., changes in the interest
margin which occurred because of a combination rate/volume change and
cannot be attributed solely to a rate change or a volume change, are
apportioned between rate and volume as follows:
1. Percentage rate increases (decreases) in rate and in volume were
calculated for each major interest earning asset and interest
bearing liability based upon their year-to-year change.
2. The percentage rate changes in rate and in volume were then
allocated proportionately in relationship to 100%.
3. The proportionate allocations were applied to the total
rate/volume change.
INVESTMENT PORTFOLIO
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's book values of investments
in obligations of the U.S. Treasury Government Agencies and Corporations, State
and Political Subdivisions (U.S.), and other securities for each of the last
five years (dollar figures in thousands):
1990 1991 1992 1993 1994
U.S. Treasury and U.S. Agency
Securities $114,485 $ 89,825 $ 77,897 $140,725 $203,956
Obligations of States and
Political Subdivisions 26,145 25,258 24,358 36,693 40,513
Other Securities 16,425 10,308 3,580 3,068 4,009
Total $157,055 $125,391 $105,835 $180,486 $248,478
The following table sets forth the registrant's book values of investments
in obligations of the U.S. Treasury, U.S. Government Agencies and Corporations,
State and Political Subdivisions (U.S.), and other securities as of December
31, 1994 by maturity and also sets forth the weighted average yield for each
range of maturities.
Obligations of
U.S. Treasury States and Weighted
and U.S. Agency Political Other Average
Book Value: Securities Subdivision Securities Yield
One Year or Less $ 85,341 $ 9,025 $ --- 6.17%
After One Year to Five Years 75,434 21,739 18 6.98%
After Five Years to Ten Years 8,729 5,949 --- 9.00%
Over Ten Years 34,452 3800 3,991 8.74%
Total $ 203,956 $ 40,513 $ 4,009 6.77%
(1) Weighted Average Yields were calculated as follows:
1. The weighted average yield for each category in the portfolio was
calculated based upon the maturity distribution shown in the table
above.
2. The yields determined in step 1 were weighted in relation to the total
investments in each maturity range shown in the table above.
(2) Yields on tax exempt securities are full tax equivalent yields at a 34%
rate.
(3) At December 31, 1994 the Company did not own any Obligation of a State or
Political Subdivision or Other Security which was greater than 10% of its
total equity capital.
LOAN PORTFOLIO
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's Loan Portfolio by major
category for each of the last five years (dollar figures in thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Commercial & Financial Loans $ 56,043 $ 83,777 $ 88,341 $121,514 $ 91,392
Agricultural Loans 38,738 32,428 45,924 40,972 31,564
Real Estate - Residential
Mortgage Loans 56,980 66,256 54,728 103,234 86,105
Real Estate - Other 10,130 18,289 16,904 35,832 53,289
Loans to Individuals 16,185 13,364 13,268 29,728 22,056
Other Loans 1,857 859 980 625 394
179,933 214,973 220,145 331,905 284,800
Less:
Unearned Discount 223 231 182 518 344
Allowance for Possible
Loan Losses 3,160 3,202 2,713 4,369 3,688
Net Loans $176,550 $211,540 $217,250 $327,018 $280,768
The following tables set forth the registrant's loan maturity distribution for
certain major categories of loans as of December 31, 1994 (dollar figures in
thousands).
AMOUNT DUE IN
1 Year or Less 1-5 Years After 5 Years
Commercial & Financial Loans $ 77,301 $ 13,947 $ 144
Agricultural Loans 26,806 4,471 287
Real Estate - Other Loans 26,528 22,715 4,046
Total $ 130,635 $ 41,133 $ 4,477
As of December 31, 1994 loans totaling $45,274,000, which are due after
one year have predetermined interest rates, while $336,000 of loans due after
one year have floating interest rates.
RISK ELEMENTS IN THE LOAN PORTFOLIO
PREMIER FINANCIAL SERVICES, INC.
The Company's financial statements are prepared on the accrual basis of
accounting, and substantially all of the loans currently accruing interest are
accruing at the rate contractually agreed upon when the loan was negotiated.
When in the judgement of management the timely receipt of interest payments on
a loan is doubtful, it is the Company's policy to cease the accrual of interest
thereon and to recognize income on a cash basis when payments are received,
unless there is adequate collateral or other substantial basis for continued
accrual of interest. An exception is made in the case of consumer installment
and charge card loans; such loans are not placed on a cash basis and all
interest accrued thereon is charged against income at the time a loan is
charged off. At the time a loan is placed in non-accrual status all interest
accrued in the current year but not yet collected is reversed against current
interest income. Troubled debt restructurings (renegotiated loans) are loans
on which interest is being accrued at less than the original contractual rate
of interest because of the inability of the borrower to service the obligation
under the original terms of the agreement. Income is accrued at the
renegotiated rate so long as the borrower is current under the revised terms
and conditions of the agreement. Other Real Estate is real estate, sales
contracts, and other assets acquired because of the inability of the borrower
to serve the obligation of a previous loan collateralized by such assets.
The following table sets forth the registrant's non-accrual, past due, and
renegotiated loans, and other Real Estate for each of the last five years
(dollar figures in thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Non-accrual Loans $ 156 $ 3,683 $ 2,915 $ 5,791 $ 4,879
Loans Past Due 90 days
or More 946 501 152 5,151 144
Renegotiated Loans 372 314 288 523 261
Other Real Estate 210 48 153 1,749 1,403
Total $ 1,684 $ 4,546 $ 3,508 $13,214 $6,687
The following table sets forth interest information for certain non-
performing loans for the year ended December 31, 1994 (dollar figures in
thousands):
Non-Accrual Loans Renegotiated Loans
Balance December 31, 1994 $ 4,879 $ 261
Gross interest income that would
have been recorded if the loans
had been current in accordance
with their original terms 507 23
Amount of interest included in
net earnings. 87 23
SUMMARY OF LOAN LOSS EXPERIENCE
PREMIER FINANCIAL SERVICES, INC.
The Company and its subsidiary banks have historically evaluated the
adequacy of their Allowance for Possible Loan Losses on an overall basis, and
the resulting provision charged to expense has similarly been determined in
relation to management's evaluation of the entire loan portfolio. In
determining the adequacy of its Allowance for Possible Loan Losses, management
considers such factors as the size, composition and quality of the loan
portfolio, historical loss experience, current loan losses, current potential
risks, economic conditions, and other risks inherent in the loan portfolio.
Because the Company has historically evaluated its Allowance for Loan
Losses on an overall basis, the Allowance has not been allocated by category.
The allocation shown in the table below, encompassing the major segments of the
loan portfolio judged most informative by management, represents only an
estimate for each category of loans based upon historical loss experience and
management's judgement of amounts deemed reasonable to provide for the
possibility of losses being incurred within each category. Approximately 28%
remain unallocated as a general valuation reserve for the entire portfolio to
cover unexpected variations from historical experience in individual
categories. The following table sets forth the registrant's loan loss
experience for each of the last five years (dollar figures in thousands):
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/94:
Loans-year End
(Gross) $ 122,956 $139,394 $ 22,056 $ 394 $ --- $284,800
Average Loans
(Gross) 131,808 135,561 24,354 581 --- 292,304
Allowance for Loan
Losses (Beginning
of Year) 1,105 1,607 585 21 1,051 4,369
Loans Charged Off 1,081 73 370 --- --- 1,524
Recoveries - Loans
Previously Charged
Off 414 15 214 --- --- 643
Net Loan Losses
(Recoveries) 667 58 156 --- --- 881
Operating Expense
Provision 200 --- --- --- --- 200
Allowance For Loan
Losses (Year End) 638 1,549 429 21 1,051 3,688
Ratios:
Loans in Category to
Total Loans 43.17% 48.95% 7.74% .14% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans .50% .04% .64% --- --- .30%
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/93:
Loans-year End
(Gross) $162,486 $139,066 $29,728 $ 625 --- $331,905
Average Loans
(Gross) 148,376 107,254 21,498 800 --- 277,928
Allowance for Loan
Losses (Beginning
of Year) 1,062 853 77 21 700 2,713
Allowance from
Acquired Entities 750 750 500 --- 351 2,351
Loans Charged Off 1,845 546 129 --- --- 2,520
Recoveries - Loans
Previously Charged
Off 138 --- 67 --- --- 205
Net Loan Losses
(Recoveries) 1,707 546 62 --- --- 2,315
Operating Expense
Provision 1,000 550 70 --- --- 1,620
Allowance For Loan
Losses (Year End) 1,105 1,607 585 21 1,051 4,369
Ratios:
Loans in Category to
Total Loans 48.96% 41.90% 8.96% .18% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans 1.15% .51% .29% --- --- .83%
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/92:
Loans-year End
(Gross) $ 134,265 $ 71,632 $ 13,268 $ 980 $ --- $220,145
Average Loans
(Gross) 129,764 77,851 13,976 1,041 --- 222,632
Allowance for Loan
Losses (Beginning
of Year) 1,553 832 97 21 700 3,203
Loans Charged Off 925 9 124 --- --- 1,058
Recoveries - Loans
Previously Charged
Off 159 30 54 --- --- 243
Net Loan Losses
(Recoveries) 766 (21) 70 --- --- 815
Operating Expense
Provision 275 --- 50 --- --- 325
Allowance For Loan
Losses (Year End) 1,062 853 77 21 700 2,713
Ratios:
Loans in Category to
Total Loans 60.99% 32.54% 6.03% .44% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans .59% (.03%) .50% --- --- .37%
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/91:
Loans-year End
(Gross) $ 116,205 $ 84,545 $ 13,364 $ 859 $ --- $214,973
Average Loans
(Gross) 101,545 69,453 13,873 1,500 --- 186,371
Allowance for Loan
Losses (Beginning
of Year) 1,394 837 208 21 700 3,160
Loans Charged Off 337 36 165 --- --- 538
Recoveries - Loans
Previously Charged
Off 496 31 54 --- --- 581
Net Loan Losses
(Recoveries) (159) 5 111 --- --- (43)
Operating Expense
Provision --- --- --- --- --- ---
Allowance For Loan
Losses (Year End) 1,553 832 97 21 700 3,203
Ratios:
Loans in Category to
Total Loans 54.06% 39.32% 6.22% .40% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans (.16%) .01% .80% --- --- (.02%)
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/90:
Loans-year End
(Gross) $ 94,781 $ 67,110 $ 16,185 $ 1,857 $ --- $179,933
Average Loans
(Gross) 88,431 66,887 15,789 2,204 --- 173,311
Allowance for Loan
Losses (Beginning
of Year) 1,647 824 285 21 700 3,477
Loans Charged Off 712 58 120 --- --- 890
Recoveries - Loans
Previously Charged
Off 459 71 43 --- --- 573
Net Loan Losses
(Recoveries) 253 (13) 77 --- --- 317
Operating Expense
Provision --- --- --- --- --- ---
Allowance For Loan
Losses (Year End) 1,394 837 208 21 700 3,160
Ratios:
Loans in Category to
Total Loans 52.68% 37.30% 9.00% 1.02% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans .29% (.02%) .49% --- --- .18%
DEPOSITS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's average daily deposits
for each of the last five years (dollar figures in thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Demand Deposits (Non-
Interest Bearing) $ 36,437 $ 36,119 $ 38,402 $66,895 $ 88,594
Demand Deposits (Interest
Bearing) 32,948 38,194 44,772 57,937 93,788
Savings Deposits 71,821 67,456 73,684 95,351 154,188
Time Deposits 170,667 138,603 140,815 182,222 172,554
Deposits in Foreign Bank
Offices None None None None None
TOTAL DEPOSITS $311,873 $280,372 $297,673 $402,405 $509,124
The following table sets forth the average rate paid on interest
bearing deposits by major category for each of the last five years (dollar
figures in thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Demand Deposits (Interest
Bearing) 5.26% 4.83% 3.67% 2.41% 2.37%
Savings Deposits 5.45% 4.89% 3.52% 2.74% 2.99%
Time Deposits 7.50% 6.65% 5.20% 4.09% 4.30%
TIME CERTIFICATE OF DEPOSIT/TIME DEPOSITS OF $100,000 OR MORE
PREMIER FINANCIAL SERVICES, INC.
The following table sets for the registrant's maturity distribution
for all time deposits of $100,000 or more as of December 31, 1994 (in
thousands):
Maturity Amount Outstanding
3 months or less $ 8,006
3 through 6 months 2,953
6 through 12 months 5,809
Over 12 months 4,097
TOTAL $ 20,865
RETURN ON EQUITY AND ASSETS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's return on average
assets, return on average common equity, return on average equity, dividend
payout ratio, and average equity to average asset ratio for each of the
last five years:
Year Ended December 31
1990 1991 1992 1993 1994
Return on Average Assets .81% 1.01% 1.15% .83% .95%
Return on Average
Common Equity 12.53% 14.29% 14.58% 10.80% 11.11%
Return on Average Equity 12.53% 14.29% 14.58% 8.99% 10.23%
Dividend Payout Ratio 16.32% 16.75% 19.73% 29.27% 26.47%
Average Equity to Average
Asset Ratio 6.47% 7.06% 7.90% 9.26% 9.27%
SHORT TERM BORROWINGS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth a summary of the registrant's short-
term borrowings for each of the last five years (dollar figures in
thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Balance at End of Period:
Federal Funds Purchased $ 4,272 $ 14,241 $ 4,272 $ --- $ 13,975
Securities Sold Under
Repurchase Agreements 50,534 43,688 14,854 20,571 16,086
Notes Payable to Banks 1,030 260 1,880 12,410 12,210
Other 2,000 --- --- --- ---
TOTAL $ 57,836 $ 58,189 $21,006 $32,981 $ 42,271
Weighted Average Interest
Rate at the end of Period:
Federal Funds Purchased 7.68% 4.75% 3.53% --- 5.75%
Securities Sold Under
Repurchase Agreements 7.19% 4.53% 3.79% 2.76% 4.47%
Notes Payable to Banks 10.00% 6.50% 6.00% 6.00% 8.00%
Other 6.50% --- --- --- ---
Highest Amount Outstanding
at Any Month-End:
Federal Funds Purchased $ 7,072 $ 14,241 $16,614 $18,535 $13,975
Securities Sold Under
Repurchase Agreements 50,534 47,033 45,557 23,952 23,127
Notes Payable to Banks 3,300 1,115 1,880 17,500 14,555
Other 2,380 2,000 --- --- 1,000
Average Outstanding During
the Year:
Federal Funds Purchased $ 2,737 $ 6,305 $10,715 $ 8,534 $ 3,205
Securities Sold Under
Repurchase Agreements 8,187 42,320 36,073 15,480 16,872
Notes Payable to Banks 1,370 760 768 7,362 12,755
Other 176 160 --- --- 201
Weighted Average Interest
Rate During the Year:
Federal Funds Purchased 8.00% 5.78% 3.93% 3.30% 4.90%
Securities Sold Under
Repurchase Agreements 7.31% 5.87% 3.74% 3.58% 3.26%
Notes Payable to Banks 10.17% 8.63% 6.12% 6.14% 7.07%
Other 6.75% 6.40% --- --- 3.98%
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to the Registrant's Proxy Statement
dated March 20, 1995 in connection with its annual meeting to be held on
April 27, 1995.
Item 405 of Regulation S-K calls for disclosure of any known late
filing or failure by an insider to file a report required by Section 16 of
the Exchange Act. This disclosure is contained in the Registrant's Proxy
Statement dated March 20, 1995 on page 20 under the Section "Compliance
with Section 16 (a) of the Exchange Act" and is incorporated herein by
reference in this Annual Report on Form 10-K.
Item 11. Executive Compensation
Incorporated herein by reference to the Registrant's Proxy Statement
dated March 20, 1995, in connection with its annual meeting to be held on
April 27, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the Registrant's Proxy Statement
dated March 20, 1995, in connection with its annual meeting to be held on
April 27, 1995.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the Registrant's Proxy Statement
dated March 20, 1995 in connection with its annual meeting to be held on
April 27, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. The following documents are filed as a part of this report:
A. Consolidated Financial Statements of the Company which are
included in the annual report of the registrant to its stock-
holders for the year ended December 31, 1994 as follows:
1. Consolidated Balance Sheets, December 31, 1994 and 1993
2. Consolidated Statements of Earnings, for the three years
ended December 31, 1994.
3. Consolidated Statements of Cash Flows, for the three years
ended December 31, 1994.
4. Consolidated Statements of Changes in Stockholders'
Equity, for the three years ended December 31, 1994.
5. Independent Auditors' Report
6. Notes to Consolidated Financial Statements
B. Financial Statement Schedules as follows:
Schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange
Commission have been omitted because they are not required
under the related instructions or the required information
as set forth in the financial statements and related
notes.
C. Exhibits as follows:
13. Premier Financial Services, Inc. Annual Report for 1994.
21. Subsidiaries of the Registrant.
22. Published report regarding matters submitted to vote of
security holders. See previous filing submitted on
March 13, 1995.
23. Consents of Experts and Counsel.
99a. Premier Financial Services, Inc. Stock and Savings Plan
Form 11-K Annual Report for the Fiscal Year
ended December 31, 1994.
99b. Premier Financial Services, Inc. Senior Leadership and
Directors Deferred Compensation Plan Form 11-K Annual
Report for the Fiscal Year ended December 31, 1994.
2. Reports on Form 8-K
The registrant has not filed a report on Form 8-K, during the
quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Premier Financial Services, Inc.
Richard L. Geach
By: Richard L. Geach, President
Chief Executive Officer and Director
Date: March 23, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
D. L. Murray Donald E. Bitz
By: D. L. Murray, Executive Vice President
Chief Financial Officer and Director
Date: March 23, 1995 Date: March 23, 1995
R. Gerald Fox Charles M. Luecke
Date: March 23, 1995 Date: March 23, 1995
Joseph C. Piland H. Barry Musgrove
Date: March 23, 1995 Date: March 23, 1995
E. G. Maris
Date: March 23, 1995
Appendix
Pursuant to paragraph 232.311 (c) of Regulatin S-T, Premier Financial Services,
Inc. is submitting on paper under cover of Form SE the financial statements of
the Plan which are included in the annual report of the Plan to its participants
for the year ended December 31, 1994.
TO OUR STOCKHOLDERS:
The Board of Directors, Officers, and Staff of Premier Financial Services,
Inc. are pleased to present our 1994 Annual Report to you.
The numbers shown in the report and discussed in the Analysis of Financial
Condition and Results of Operations detail our financial performance.
Among other measures of success, earnings per share improved by 23.6% over
1993; non-performing assets decreased from $13.2 million at year end 1993
to $7.1 million this year; and dividends on your common stock were
increased by 28.6%, from $.14 to $.18 per share.
Our primary commitment to you is to deliver superior financial performance
on your behalf. The financial results we've experienced in 1994 are
gratifying. From a longer term perspective, the progress we've made in
digesting a major acquisition over the past year and a half adds an
important potential for continued improvement.
Premier is an emerging financial services company. As we move into 1995
and beyond, we intend to continue building Premier on the dynamics in the
marketplace, dynamics which are rapidly redefining our industry.
Regulatory pressures to preserve banking as a transaction oriented, niche
industry are enormous. Customers, however, continue to prefer complete
financial services, not fragmented products provided by various types of
organizations.
You'll notice that the first page of this report depicts a "pie" of
financial services. Each piece of the pie is an important component in a
complete financial relationship.
The chart doesn't really show anything new. Most of these products and
services have been around for years; but, it's been necessary to go to
several different companies to get them. Now, most of them are available
through any number of providers and all of them through Company's like
ours. It's critical that each of them be considered, and then integrated
into a complete financial portfolio. Premier has the expertise to deliver
them all.
The point is this; the successful, profitable financial services firm of
the future must be equipped to guide its customers through a maze of
financial choices by helping them with all of their financial needs.
That's where Premier comes in, and that's what we do best. Premier is a
FINANCIAL SERVICES COMPANY, and we can provide our customers with the whole
"pie". We're proud of our staff, their skills and their commitment to
accommodate our customers' financial needs.
We also intend to continue looking for opportunities to diversify and
expand Premier both geographically and in our existing market areas. In
mid 1993, we took a major step in that direction by adding First National
Bank of Northbrook and First Security Bank of Cary-Grove to our Company.
In December, 1994, we added another vibrant market, DeKalb, by purchasing a
branch office and customer base.
We look forward to Premier's future. Competing in the financial services
arena is both challenging and rewarding. Premier, we believe, is
positioned to be an effective competitor.
Thank you for your investment in our Company, and your support of our
efforts.
Cordially,
Richard L. Geach
President & Chief Executive Officer
David L. Murray
Executive Vice President &
Chief Financial Officer
<TABLE>
<CAPTION>
Consolidated Balance Sheets
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1994, and 1993
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash & non-interest bearing deposits $31,186,418 $26,151,048
Interest bearing deposits 14,683,941 20,227,486
Federal funds sold - 9,977,000
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 45,870,359 56,355,534
- ------------------------------------------------------------------------------------------------------------------------------
Investments held to maturity (approximate market value):
December 31, 1994 - $40,516,000
December 31, 1993 - $41,572,000 40,513,480 39,787,245
Securities available for sale (approximate market value):
December 31, 1994 - $207,965,000
December 31, 1993 - $141,744,000 207,964,644 140,699,066
Loans 284,799,933 331,905,335
Less: Unearned discount ( 343,902) ( 517,932)
Allowance for possible loan losses ( 3,688,386) ( 4,369,290)
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 280,767,645 327,018,113
- ------------------------------------------------------------------------------------------------------------------------------
Bank premises & equipment 14,254,748 15,153,969
Excess cost over fair value of net assets acquired 21,600,583 23,193,016
Accrued interest receivable 5,835,006 5,070,332
Other assets 3,697,272 3,385,935
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $620,503,737 $610,663,210
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities & stockholders' equity
Non-interest bearing deposits $86,018,604 $104,976,862
Interest bearing deposits 437,674,799 413,042,081
- ------------------------------------------------------------------------------------------------------------------------------
Deposits 523,693,403 518,018,943
- ------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 26,185,000 12,410,000
Securities sold under agreements to repurchase 16,085,872 20,571,658
Accrued taxes & other expenses 1,759,512 3,667,295
Other liabilities 303,118 579,275
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities 568,026,905 555,247,171
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock - $1 par value, 1,000,000 shares authorized:
Series A perpetual, $1,000 stated value, 8.25%, 7,000 shares
authorized, 5,000 shares issued and outstanding; 5,000,000 5,000,000
Series B convertible, $1,000 stated value, 7.50%, 7,250 shares
authorized, 7,250 shares issued and outstanding at December 31, 1994,
5,950 shares issued and outstanding at December 31, 1993; 7,250,000 5,950,000
Series C perpetual, $1,000 stated value, 7.00%, 1,950 shares
authorized, issued and outstanding at December 31, 1993; - 1,950,000
Series D perpetual, $1,000 stated value, 3,300 shares authorized,
2,000 shares issued and outstanding at 7.50%, at December 31, 1994,
3,300 shares issued and outstanding at 9.00%, at December 31, 1993; 2,000,000 3,300,000
Common stock- $5.00 par value
No. of Shares 1994 1993
Authorized 15,000,000 2,500,000
Issued 6,526,227 2,172,863
Outstanding 6,504,876 2,163,107 32,631,135 10,864,315
Surplus - 16,134,180
Retained earnings 10,149,027 12,426,322
Unrealized loss on securities available for sale (net of tax) ( 4,403,568) -
Treasury stock, (21,351 shares at cost, 1994 and 9,756 at cost, 1993) ( 149,762) ( 208,778)
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 52,476,832 55,416,039
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities & stockholders' equity $620,503,737 $610,663,210
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
- -----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1994, 1993 and 1992
Interest income 1994 1993 1992
<S> <C> <C> <C>
Interest & fees on loans $23,625,296 $22,235,746 $19,821,679
Interest & dividends on investment securities:
Taxable 9,928,614 6,077,449 6,691,118
Exempt from federal income tax 2,309,789 1,891,854 1,596,176
Other interest income 663,317 236,540 244,232
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income 36,527,016 30,441,589 28,353,205
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 13,510,527 11,461,443 11,558,533
Interest on short-term borrowings 1,618,879 1,289,326 1,800,075
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense 15,129,406 12,750,769 13,358,608
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 21,397,610 17,690,820 14,994,597
Provision for possible loan losses 200,000 1,620,000 325,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 21,197,610 16,070,820 14,669,597
- -----------------------------------------------------------------------------------------------------------------------------------
Other income
Trust fees 2,367,156 2,161,597 1,855,838
Service charges on deposits 1,907,463 1,466,387 934,461
Net gains on loans sold to secondary market 256,831 886,231 649,707
Investment securities gains, net 35,201 136,391 358,038
Other operating income 2,119,461 1,342,701 976,597
- -----------------------------------------------------------------------------------------------------------------------------------
Other income 6,686,112 5,993,307 4,774,641
- -----------------------------------------------------------------------------------------------------------------------------------
Other expenses
Salaries 7,767,407 6,814,448 5,996,881
Pension, profit sharing, & other employee benefits 1,112,672 825,066 803,954
Net occupancy of bank premises 1,981,801 1,523,649 1,117,690
Furniture & equipment 1,088,454 1,064,031 882,818
Federal deposit insurance premiums 1,161,540 918,447 650,656
Amortization of excess cost over fair value of net assets acquired 1,592,433 833,838 194,197
Other 5,059,412 4,493,368 3,462,725
- -----------------------------------------------------------------------------------------------------------------------------------
Other expense 19,763,719 16,472,847 13,108,921
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 8,120,003 5,591,280 6,335,317
Applicable income taxes 2,409,708 1,580,070 1,983,202
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $5,710,295 $4,011,210 $4,352,115
===================================================================================================================================
Earnings per share
(On weighted average outstanding common
shares of 6,648,744 in 1994, 6,245,097
in 1993 and 5,855,787 in 1992) $.68 $.55 $.74
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------- -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $5,710,295 $4,011,210 $4,352,115
Adjustments to reconcile net earnings
to net cash from operating activities:
Amortization net, related to:
Investment securities 2,002,842 1,239,194 110,677
Excess of cost over net assets acquired 1,592,433 833,838 194,197
Other 248,371 178,029 ( 36,348)
Depreciation 1,135,556 1,076,355 893,735
Provision for possible loan losses 200,000 1,620,000 325,000
Gain on sale related to:
Investment securities ( 35,201) ( 136,391) ( 358,038)
Loans sold to secondary market ( 256,831) ( 886,231) ( 649,707)
Loans originated for sale ( 18,864,000) ( 58,485,000) ( 62,810,000)
Loans sold to secondary market 18,864,000 58,485,000 62,810,000
Deferred income tax (benefit) expense 239,000 108,000 ( 38,443)
Change in:
Securities available for sale - ( 64,108,609) -
Trading account assets - - 500,000
Accrued interest receivable ( 764,674) ( 1,374,094) 682,283
Other assets ( 311,337) ( 4,850,293) 143,885
Accrued taxes & other expenses ( 2,146,783) 1,623,933 14,135
Other liabilities ( 276,156) 127,395 ( 185,852)
---------------------------------------------------------------------------------------------------------------------
Net cash from operating activities ( 7,337,515) ( 60,537,664) 5,947,639
---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Cash portion of acquisition, net of
cash and cash equivalents acquired - ( 2,390,348) -
Purchase of investment securities ( 11,095,547) ( 20,141,426) ( 78,440,053)
Purchase of Securities Available for sale (131,754,087)
Proceeds from:
Maturities of investment securities 6,791,405 5,038,965 49,218,292
Sales of investment securities - 3,456,965 49,024,966
Maturities of securities available for sale 38,951,206
Sales of securities available for sale 22,744,000
Net increase in loans 46,113,195 ( 110,655,210) ( 5,135,541)
Purchase of bank premises & equipment ( 290,602) ( 4,614,612) ( 4,949,619)
----------------------------------------------------------------------------------------------------------------------------
Net cash from investing activities ( 28,540,430) ( 129,305,666) 9,718,045
---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 5,674,460 209,125,831 22,113,588
Securities sold under agreements to repurchase ( 4,485,786) 5,717,248 ( 28,833,142)
Short term borrowings 13,775,000 6,258,000 ( 8,349,000)
Purchase of treasury stock - ( 208,778) -
Reissuance (purchase) of treasury stock 59,016 - -
Exercised stock options 19,000 - 74,901
(Redemption) issuance of preferred stock ( 1,950,000) 5,000,000 -
Cash dividends paid ( 2,373,950) ( 1,574,037) ( 831,206)
---------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 10,717,740 224,318,264 ( 15,824,859)
---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents ( 10,485,175) 34,474,934 ( 159,175)
Cash and cash equivalents, beginning of year 56,355,534 21,880,600 22,039,775
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $45,870,359 $56,355,534 $21,880,600
---------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest 14,951,689 12,885,202 13,663,283
Income taxes 2,148,000 1,980,000 1,836,881
Purchase of Bank Subsidiaries and Branch
Fair value of assets acquired 90,514 248,018,274 -
Cash received (paid) 10,037,078 ( 16,325,000) -
Common and preferred stock issued - ( 16,450,000) -
Excess cost over fair value of assets acquired - 21,007,210 -
Deposit premium 1,123,304 - -
Fair value of liabilities assumed 11,250,896 236,250,484 -
Non-cash activities:
Investment securities transferred to
securities available for sale 141,744,000 - 77,520,998
Conversion of preferred stock 1,300,000 - -
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1994, 1993, and 1992
Unrealized Loss
On Securities ESOP Shares
Preferred Common Retained Available For Treasury Purchased
Stock Stock Surplus Earnings Sale, Net Of Tax Stock With Debt Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1,
1992 $ - $9,050,760 $10,760,735 $9,080,864 $ - ( $750,523) ($212,699) $27,929,137
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings 4,352,115 4,352,115
Cash dividends ( 831,206) ( 831,206)
10% stock dividend 870,875 1,741,749 ( 2,612,624) -
Employee stock
ownership plan
debt reduction 212,699 212,699
Exercised
stock options 44,095 30,806 74,901
- -------------------------------------------------------------------------------------------------------------------------------
Balance December 31,
1992 - 9,965,730 12,533,290 9,989,149 ( 750,523) - 31,737,646
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings 4,011,210 4,011,210
Cash dividends
common stock ( 981,755) ( 981,755)
Cash dividends
preferred stock ( 592,282) ( 592,282)
Issuance of
Class A perpetual
preferred shares 5,000,000 5,000,000
Issuance of shares
in acquisition:
Common shares 898,585 3,600,890 4,499,475
Class B convertible
preferred shares 5,950,000 5,950,000
Class C perpetual
preferred shares 1,950,000 1,950,000
Class D perpetual
preferred shares 3,300,000 3,300,000
Treasury stock
reissuance 750,523 750,523
Treasury stock
purchase ( 208,778) ( 208,778)
- --------------------------------------------------------------------------------------------------------------------------------
Balance December 31,
1993 16,200,000 10,864,315 16,134,180 12,426,322 - ( 208,778) - 55,416,039
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings 5,710,295 5,710,295
Cash dividends
common stock (1,169,392) (1,169,392)
Cash dividends
preferred stock (1,204,558) (1,204,558)
Three-for-one
stock split 21,728,630 (16,134,180) (5,594,450) -
Redemption of
Series C -
perpetual preferred
stock ( 1,950,000) (1,950,000)
Exercised stock options 38,190 (19,190) 19,000
Unrealized loss on
securities available
for sale, net of tax ( 4,403,568) (4,403,568)
Treasury stock reissuance 59,016 59,016
- ------------------------------------------------------------------------------------------------------------------------------
Balance December 31,
1994 $14,250,000 $32,631,135 $ - $10,149,027 ( $4,403,568) ( $149,762)$ - $52,476,832
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Independent Auditors' Report
The Board of Directors
Premier Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of
Premier Financial Services, Inc. and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1994. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Premier Financial Services, Inc. and subsidiaries at December 31, 1994 and
1993, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1994 in conformity
with generally accepted accounting principles.
As discussed in Note 1 the Company changed its method of accounting
for investments to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities, in 1994.
KPMG Peat Marwick, LLP
Chicago, Illinois
January 27, 1995
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
1. Significant accounting policies
The accompanying consolidated financial statements conform to generally
accepted accounting principles and to general practices within the banking
industry. The following is a description of significant accounting
policies.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
Premier Financial Services, Inc. (the Company) and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Investments held-to-maturity
Investments held-to-maturity are stated at cost adjusted for amortization
of premiums and accretion of discounts on the level yield method over the
life of the security. Management has the positive intent and ability to
hold these investment securities to maturity.
Securities available for sale
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities, on
January 1, 1994. In accordance with SFAS No. 115, securities classified as
"securities available for sale" are carried at market value with unrealized
gains and losses net of income taxes excluded from earnings and reported as
a separate component of stockholders' equity. Prior to adoption of SFAS
No. 115, these securities were carried at the lower of cost or market
value. The impact of the adoption of SFAS No. 115 increased stockholders'
equity by $690,000.
Loans
Loans are stated at face value less unearned discounts. Interest income on
loans not discounted is computed on the principal balance outstanding.
Interest income on discounted loans is computed on a basis which results in
an approximate level rate of return over the term of the loan. Accrual of
interest is discontinued on a loan when management believes that the
borrower's financial condition is such that collection of interest is
doubtful.
Allowance for possible loan losses
The allowance for possible loan losses is increased by provisions charged
to expense and recoveries on loans previously charged off, and reduced by
loans charged off in the period. The allowance is based on past loan loss
experience, management's evaluation of the loan portfolio considering
current economic conditions and such other factors, which, in management's
best judgement, deserve current recognition in estimating loan losses.
Regulatory examiners may require the Company to recognize additions to the
allowances based upon their judgments about information available to them
at the time of their examination.
Bank premises and equipment
Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation expense is computed on a
straight line basis over the estimated useful life of each asset. Rates of
depreciation are based on the following: building 40 years and equipment
3-15 years. Cost of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are reflected as expense when
incurred.
Excess cost over fair value of net assets acquired
The excess cost over fair value of net assets acquired is being amortized
over 25 years for acquisitions prior to 1985, and over 15 years for
acquisitions subsequent to that date using the straight line method.
Income taxes
The Company and its subsidiaries file consolidated federal and state income
tax returns. Effective January 1, 1993 the Company adopted SFAS No. 109,
"Accounting for Income Taxes." Prior to this date, the Company followed
APB Opinion No. 11. Statement 109 requires a change from the deferred
method of accounting for income taxes of APB Opinion No. 11 to the asset
and liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. The adoption of SFAS No. 109 had
an immaterial impact on the financial statements of the Company.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992, deferred income taxes were recognized for income and expense items
that were reported in different years for financial reporting purposes and
income tax purposes using the tax rate applicable for the year of the
calculation. Under the deferred
method, deferred taxes were not adjusted for subsequent changes in tax rates.
Earnings per share
Earnings per share is computed by dividing net income (less preferred stock
dividends) by the total of the average number of common shares outstanding
and the additional dilutive effect of stock options outstanding during the
respective period. The dilutive effect of stock options is computed using
the average market price of the Company's common stock for the period.
2. Cash and noninterest bearing deposits
Cash and noninterest bearing deposits includes reserve balances that the
Company's subsidiary banks are required to maintain with the Federal
Reserve Bank of Chicago. These required reserves are based
principally on deposits outstanding. The average reserves required
for the years ended December 31, 1994 and 1993 were $1,899,000 and $1,055,000.
15
3. Investments held-to-maturity and securities available for sale
The amortized cost and approximate market value of investments held-
to-maturity at December 31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
Gross Gross Approximate Gross Gross Approximate
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agency obligations $- $- $- $- $26 $- $- $26
Obligations of states &
political subdivisions 40,483 1,170 (1,167) 40,486 36,693 1,778 (6) 38,465
Other securities 30 - - 30 3,068 13 - 3,081
$ 40,513 $ 1,170 $ (1,167) $ 40,516 $39,787 $1,791 $(6) $41,572
</TABLE>
The carrying value and approximate market value of securities available
for sale at December
31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
Gross Gross Approx. Gross Gross Approx.
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $ 71,125 $ 16 $ (1,721) $ 69,420 $ 73,384 $ 511 $ (24) $ 73,871
U.S. Government agencies 103,408 61 (3,754) 99,715 53,853 441 (55) 54,239
Mortgage-backed securities 35,723 33 (1,304) 34,452 13,462 183 (11) 13,634
Other securities 4,381 - (3) 4,378 - - - -
$ 214,637 $ 110 $ (6,782) $207,965 $140,699 $ 1,135 (90) $141,744
</TABLE>
16
The amortized cost and market value of investments held-to-maturity as
of December 31, 1994 and 1993 by contractual maturity are shown below.
Expected maturities may borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1994 1993
Approximate Approximate
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $ 9,025 $ 8,794 $ 5,817 $ 5,895
Due after one year through five years 21,739 21,725 24,251 24,932
Due after five years through ten years 5,949 6,053 6,238 7,074
Due after 10 years 3,800 3,944 3,455 3,645
Mortgage-backed securities - - 26 26
$40,513 $40,516 $39,787 $41,572
</TABLE>
The amortized cost and market value of securities available for sale
as of December 31, 1994 and 1993 by contractual maturity are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
1994 1993
Approximate Approximate
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $87,595 $85,342 $26,650 $26,918
Due after one year through five years 78,463 75,451 94,916 95,528
Due after five years through ten years 8,865 8,729 5,671 5,663
Due after ten years 3,991 3,991 - -
Mortgage-backed securities 35,723 34,452 13,462 13,635
$214,637 $207,965 $140,699 $141,744
</TABLE>
Proceeds from sales of securities available for sale during 1994 were
$22,744,000. Gross gains of $40,000 and gross losses of $5,000 were
realized on those sales. During 1993, proceeds from sales of
investment securities were $4,457,000. Gross gains of $141,000 and
gross losses of $5,000 were realized on those sales. During 1992,
proceeds from sales of investment securities were $49,025,000. Gross
gains of $386,000 and gross losses of $28,000 were realized on those
sales.
On December 31, 1994 securities with a carrying value of approximately
$120,038,000 were pledged to secure funds and trust deposits and for
other purposes as required or permitted by law.
18
4. Loans
The following is a summary of loans by major classification as of
December 31, 1994 and 1993 (in thousands):
1994 1993
Commercial and financial loans $ 91,392 $ 121,514
Agricultural loans 31,564 40,972
Real estate-residential 86,105 103,234
Real estate-commercial 53,289 35,832
Loans to individuals 22,056 29,728
Other loans 394 625
$ 284,800 $ 331,905
The Company serviced loans for others totaling $91,806,000,
$81,939,000, and $63,688,000 as of December 31, 1994, 1993 and 1992,
respectively.
A summary of changes in the allowance for possible loan losses for the
three years ended December 31 is as follows (in thousands):
1994 1993 1992
Balance beginning of year $ 4,369 $ 2,713 $3,203
Allowance from acquired entity - 2,351 -
Recoveries 643 205 243
Provision charged to operating expense 200 1,620 325
5,212 6,889 3,771
Less:loans charged off 1,524 2,520 1,058
Balance end of year $ 3,688 $4,369 $2,713
The Company's subsidiary banks make loans to their executive officers,
directors, principal holders of the Company's equity securities and to
associates of such persons. At December 31, 1994 and 1993, such loans
aggregated $2,152,000 and $3,084,000, respectively. These loans were
made in the ordinary course of business on the same terms and
conditions, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
customers and do not involve more than a normal risk. The following
is a summary of activity with respect to such loans for the latest
fiscal year (in thousands):
Balance, January 1, 1994 $3,084
New loans 222
Repayments 1,154
Balance, December 31, 1994 $2,152
19
As of December 31, 1994 and 1993, the outstanding balance of
nonaccrual loans was approximately $4,879,000 and $5,791,000
respectively. Had interest on such loans been accrued, interest and
fees on loans in the accompanying consolidated statements of earnings
would have been greater by approximately $420,000, $416,000 and
$339,000 in 1994, 1993 and 1992 respectively.
5. Bank premises and equipment
Bank premises and equipment are recorded at cost less accumulated
depreciation as follows (in thousands):
1994 1993
Land, buildings and improvements $17,784 $17,866
Furniture, fixtures and equipment 5,331 5,328
23,115 23,194
Less accumulated depreciation 8,860 8,040
$14,255 $15,154
6. Short-term borrowings and securities sold under agreements to
repurchase
Following is a summary of short-term borrowings at December 31, 1994
and 1993 (in thousands):
1994 1993
Federal funds purchased $13,975 $ -
Note payable to bank 12,210 12,410
$26,185 $12,410
The note payable to bank totaling $12,210,000 at December 31, 1994 is
due on demand with variable interest (8.00% at December 31, 1994) and
is secured by the Company's common stock holdings in its subsidiaries.
The note payable is a draw on a $15 million revolving credit which
matures in January, 1999. The note agreement contains certain
restrictive covenants. The Company was in compliance with such
covenants at December 31, 1994.
At December 31, 1994 there were no material amounts of assets at risk
with any one customer under agreements to repurchase securities sold.
At December 31, 1994 and 1993 securities sold under agreements
to repurchase are summarized as follows (in thousands):
Weighted
average Collateral
Repurchase interest Collateral Market
1994 liability rate Book Value Value
Within 30 days $ - - % $ - $ -
30 - 90 days 1,075 3.79% 1,096 1,084
After 90 days 2,334 5.91% 2,427 2,357
Demand 12,677 4.26% 29,180 28,603
$16,086 4.47% $32,703 $32,044
20
Weighted
average Collateral
Repurchase interest Collateral Market
1993 liability rate Book Value Value
Within 30 days $ 165 2.97% $ 403 $ 407
30 - 90 days 3,040 3.41% 4,672 4,736
After 90 days 1,200 3.57% 1,216 1,213
Demand 16,166 2.57% 20,808 21,267
$20,571 2.76% $27,099 $27,623
7. Employee benefit plans
The Company has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and
the employee's compensation during the highest 25 years of
compensation. Effective July 1, 1994 the Company froze the benefits
accumulating to participants. Accrued benefits as of that date were
fully funded.
Assumptions used in accounting for the pension plans as of
December 31, 1994 and 1993 were as follows:
1994 1993
Discount rate 8.50% 7.00%
Rate of increase in compensation level 4.00% 4.00%
Expected long-term rates of return on assets 8.50% 8.50%
21
<TABLE>
<CAPTION>
The following table sets forth the plan's funding status and amounts
recognized in the Company's consolidated balance sheets at
December 31, 1994 and 1993 (in thousands):
1994 1993
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation $2,696 $3,102
Vested benefit obligation $2,696 $2,959
Projected benefit obligation for service rendered to date $2,696 $4,062
Plan assets at fair value, primarily listed stocks & US Bonds 3,419 3,446
Plan assets in excess (deficiency) of projected benefit obligation 723 (616)
Unrecognized net gain (loss) from past experience different from
that assumed and effects of changes in assumptions (267) 960
Unrecognized prior service cost - (7)
Unrecognized net assets at beginning of year being recognized
over 15 years (346) (404)
Prepaid (accrued) pension cost included in other assets $ 110 $ (67)
</TABLE>
Net pension cost for 1994, 1993 and 1992 included the following
components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 91 $ 166 $ 160
Interest cost on projected benefits obligation 236 255 245
Actual return on plan assets (103) (231) (214)
Net amortization and deferral (212) (70) (65)
Gain on curtailment (189) - -
Net periodic pension (income) expense $(177) $ 120 $ 126
</TABLE>
The Company has a savings and stock plan for officers and employees.
Company contributions to the plan are discretionary. The plan
includes provisions for employee contributions which are considered
tax-deferred under Section 401(k) of the Internal Revenue Code. The
total expense was $191,000 for 1994, $217,661 for 1993, and $329,592
for 1992.
22
The Company has a nonqualified stock option plan for key employees.
Options may be exercised at market price on grant date at the rate of
20% of granted shares at the end of each year in the succeeding five-
year period after the grant date.
At December 31, 1994, 34,095 of the options had been exercised. At
December 31, 1994, there were no shares available for additional
options and no new options were granted in 1994. The following is a
summary of options granted, net of forfeitures:
Grant Share Options Price Expiration
Year Granted per Share Date
1988 103,128 $2.49 July 28, 1998
1989 138,240 3.16 June 22, 1999
1990 57,606 2.74 Dec. 20, 2000
1991 39,462 4.55 Dec. 20, 2001
1992 - - -
1993 43,578 7.17 Sept. 28, 2003
In 1990 a Performance Unit Plan was adopted under which the Company
could grant up to an aggregate of 200,000 units to key employees. The
value of each unit granted under the plan was established at the date
of grant and each succeeding anniversary date by a formula based upon
the five-year weighted average earnings per share, or an amount
determined by the Board of Directors. The Plan was terminated in 1994
and the discounted present value of the 18,542 units granted under the
Plan ($202,500) is included in accrued taxes and other expenses at
December 31, 1994. The total expense was $16,500 for 1994 and $78,000
for both 1993 and 1992.
The Company adopted a Deferred Compensation Plan in 1994 for Directors
and employees designated as Senior Leadership Employees by the Board
of Directors. Participants may elect to defer up to 20% of salary,
50% of any bonus or 100% of directors fees under the Plan. The
Company makes a 25% matching contribution. Amounts deferred are used
to purchase company stock. Two hundred thousand shares are registered
for purchase by the Plan. Participants deferral amounts are 100%
vested, with matching contributions 100% vested on the earlier of the
end of the third year following the year in which deferrals are made
or termination of employment for any reason other than discharge for
cause. Total expense was approximately $9,000 in 1994.
8. Stockholders' equity
On April 28, 1994, the Board of Directors declared a three-for-one
stock split in the form of a stock dividend, payable July 1, 1994 to
stockholders of record on June 8, 1994. The stated par value of each
share remained at $5 per share. The stock split resulted in the
issuance of 4,345,726 additional shares of common stock from
authorized but unissued shares. The issuance of authorized but
unissued shares resulted in the transfer of $16,134,180 from surplus
and $5,594,450 from retained earnings to common stock, representing
the par value of the shares issued. Accordingly, earnings per share,
cash dividends per share, weighted average shares outstanding and
related prices, and the stock option plan information for prior
periods presented have been restated to reflect the stock split.
23
In 1994, the Company redeemed all of the outstanding Series C
Preferred Stock for $1,950,000 and converted 1,300 shares of Series D
Preferred Stock to Series B convertible Preferred Stock at stated
value.
On January 23, 1992, a 10% stock dividend was declared payable March
31, 1992, to shareholders of record February 28, 1992. As a result of
the dividend, common stock was increased by $870,875, surplus was
increased by $1,741,749 and retained earnings was decreased by
$2,612,624. Weighted average shares outstanding and related prices,
all per share amounts and the stock option plan information included
in the accompanying consolidated financial statements and notes are
based on the increased numbers of shares giving retroactive effect to
the stock dividend.
The amount of dividends payable by the Company on its common stock is
limited by the provisions of its term loan and revolving credit
agreement. At December 31, 1994, the Company had $2,477,000 of
retained earnings available for the payment of dividends.
State banking regulations restrict the amount of dividends that a bank
may pay to stockholders. The regulations provide that dividends are
limited to the balance of retained earnings, subject to capital
adequacy requirements, plus an additional amount equal to its net
earnings in 1995 through the date of any declaration of dividends.
24
9. Income Taxes
As discussed in note 1, the Company adopted Statement 109 as of January
1, 1993. The cumulative effect of this change in accounting for income
taxes was immaterial. Prior years' financial statements have not been
restated to apply the provisions of Statement 109. The components of
total tax expense (benefit) are as follows (in thousands):
1994 1993 1992
Current federal $2,171 $1,472 $2,022
Deferred federal 239 108 (39)
Total income tax expense $2,410 $1,580 $1,983
The actual tax expense differs from the expected tax expense computed by
applying the Federal corporate tax rate of 34% to earnings before income
taxes as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Tax expense at statutory rate $2,760 $1,901 $2,154
Tax-exempt interest, net of premium amortization (892) (592) (502)
Amortization of excess cost over net assets acquired 541 284 66
Capitalized acquisition costs - 39 76
Other, net 1 (52) 189
Total income tax expense $2,410 $1,580 $1,983
</TABLE>
The sources of timing differences resulting in deferred income taxes
determined under APB Opinion No. 11 and the tax effect for the year
ended December 31, 1992 was as follows (in thousands):
25
1992
Provision for possible loan and
other real estate owned losses $39
Accounting method differences and
changes (7)
Depreciation 23
Deferred loan fees 12
Security accretion (47)
Accrued software conversion costs (60)
Other, net 1
Total deferred tax benefit $(39)
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred tax
assets as of December 31, 1994 and 1993 are as follows (in
thousands):
Deferred tax liabilities: 1994 1993
Security accretion $81 $78
Tax depreciation in excess of
book depreciation 272 329
Difference between tax and
book basis of assets acquired 1,753 2,288
Other 17 -
Total gross deferred tax
liabilities $2,123 $2,695
Deferred tax assets:
Alternative minimum tax credit
carryforward $448 $634
Net operating loss
carryforwards 1,275 1,488
Provision for other real
estate owned - 208
Provision for loan losses 842 1,048
Deferred loan fees 117 154
Unrealized loss on securities
available for sale 2,268 -
Other 90 108
Total gross deferred tax
assets $5,040 $3,640
Less: Valuation allowance (950) (1,000)
Net deferred tax assets 4,090 2,640
Net deferred tax (asset)
liability $(1,967) $ 55
26
The net change in the valuation allowance for the year ended December
31, 1994 was a decrease of $50,000.
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1994 will be
allocated as follows:
Income tax benefit reported in the
consolidated statement of earnings $ 842
Excess cost over fair value of net
assets acquired 108
$ 950
At December 31, 1994, the Company also has alternative minimum tax
credit carryforwards of approximately $448,000 which are available to
reduce future federal regular income taxes of the related acquired
entities over an indefinite period.
The Company has net operating loss carryforwards for state income tax
purposes of approximately $27 million which expire beginning in 2000
through 2006.
10. Financial instruments with off-balance sheet risk and
contingencies
The company utilizes various financial instruments with off-balance
sheet risk to meet the financing needs of its customers, to generate
profits and to reduce its own exposure to fluctuations in interest
rates. These financial instruments, many of which are so-called "off-
balance sheet" transactions, involve to varying degrees, credit and
interest rate risk in excess of the amount recognized as either an
asset or liability in the consolidated balance sheets.
Credit risk is the possibility that a loss may occur because a party
to a transaction failed to perform according to the terms of the
contract. Interest rate risk is the possibility that future changes
in market interest rates will cause a financial instrument to be
less valuable or more onerous. The Company controls the credit risk
arising from these instruments through its credit approval process and
through the use of risk control limits and monitoring procedures. The
Company uses the same credit policies when entering into financial
instruments with off-balance sheet risk as it does for on-balance
sheet instruments. At December 31, 1994 and 1993, such commitments
and off-balance sheet financial instruments are as follows (in
thousands).
1994 1993
Letters of credit $2,827 $5,394
Lines of credit and other loan commitments 80,338 70,300
$83,165 $75,694
Letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit
risk involved in issuing standby letters of credit is essentially the
same as that involved in extending loan facilities to customers.
27
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payments of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
There are various claims pending against the Company and its
subsidiaries arising in the normal course of business. Management
believes, based upon the opinion of counsel, that liabilities arising
from these proceedings, if any, will not be material to the Company's
financial position.
11. Disclosures about fair value of financial instruments
Provided below is the information required by Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value Of
Financial Instruments. These amounts represent estimates of fair
values at a point in time. Significant estimates regarding economic
conditions, loss experience, risk characteristics associated with
particular financial instruments and other factors were used for the
purposes of this disclosure. These estimates are subjective in nature
and involve matters of judgement. Therefore, they cannot be
determined with precision. Changes in the assumptions could have a
material impact on the amounts estimated.
The estimated fair values disclosed do not reflect the value of assets
and liabilities that are not considered financial instruments. In
addition, the value of long-term relationships with depositors (core
deposit intangibles) and other customers (trust customers) are not
reflected. The value of these items is significant.
Because of the wide range of valuation techniques and the numerous
estimates which must be made, it may be difficult to make reasonable
comparisons of the Company's fair value information to that of other
financial institutions. It is important that the many uncertainties
discussed above be considered when using the estimated fair value
disclosures and to realize that because of these uncertainties, the
aggregate fair value amount should in no way be construed as
representative of the underlying value of the Company.
Cash and cash equivalents
Cash and cash equivalents are by definition short-term and do not
present any unanticipated credit issues. Therefore, the carrying
amount is a reasonable estimate of fair value.
Investments held-to-maturity and securities available for sale
The estimated fair values of investments held-to-maturity and
securities available for sale are provided in Footnote 3 to the
financial statements. These are based on quoted market prices, when
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans
The carrying amount (total outstanding excluding unearned income) and
estimated fair value of loans outstanding at December 31, 1994 are
$284.5 million and $280.3 million, respectively. In order to
determine the fair values for loans the loan portfolio was categorized
based on loan type such as commercial, real estate, agricultural,
individual and nonperforming. Each loan category was further
segmented into fixed and adjustable rate interest terms. For
28
performing, variable rate loans with no significant credit concerns
and frequent repricing, estimated fair values are based on carrying
values. The fair values of other performing loans except residential
real estate and credit card loans are estimated using discounted cash
flow analyses. The discount rates used in these analyses are based on
origination rates for similar loans of comparable credit quality. For
performing residential real estate loans, fair value is estimated by
discounting contractual cash flows adjusted for prepayment estimates
using discount rates based on secondary market sources adjusted to
reflect differences in servicing and credit costs.
Fair value for significant nonperforming loans is based on recent
external appraisals. If appraisals are not available, estimated cash
flows are discounted using a rate commensurate with the risk
associated with the estimated cash flows. Assumptions regarding
credit risk, cash flows and discount rates are judgmentally determined
using available market information and specific borrower information.
Deposit liabilities
The carrying amount and estimated fair value of deposits outstanding
at December 31, 1994 are $523.7 million and $519.5 million,
respectively. Under SFAS 107, the fair value of deposits with no
stated maturity is equal to the amount payable upon demand.
Therefore, the fair value estimates for these products do not reflect
the benefits that Premier receives from the low-cost, long-term
funding they provide. These benefits are significant. The estimated
fair value of time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using the
rates currently offered for deposits of similar remaining maturities.
Short-term borrowings
Short-term borrowings reprice frequently and therefore the carrying
amount is a reasonable estimate of fair value.
Securities sold under agreement to repurchase
The fair value of securities sold under agreements to repurchase is
estimated using the rates currently offered for securities sold under
agreements to repurchase with similar remaining maturities. Both the
carrying values and estimated fair values of Premier's securities sold
under agreements to repurchase as of December 31, 1994 were $16.1
million.
Commitments to extend credit and letters of credit
Pricing of these financial instruments is based on the credit quality
and relationship, fees, interest rates, probability of funding, and
compensating balance and other covenants or requirements. Loan
commitments generally have fixed expiration dates, are variable rate
and contain termination and other clauses which provide for relief
from funding in the event that there is significant deterioration
in the credit quality of the customer. Many loan commitments are
expected to, and typically do, expire without being drawn upon.
The rates and terms of Premier's commitments to lend, and
letters of credit are competitive with others in the various
markets in which Premier operates. The carrying amounts are
reasonable estimates of the fair values of these financial
instruments. Carrying amounts are comprised of the unamortized fee
income and, where necessary, reserves for any expected credit losses
from these financial instruments.
29
12. Acquisition
On July 16, 1993, the Company acquired 100% of the common stock of
First Northbrook Bancorp, Inc., Northbrook, Illinois for a total
purchase price of $32,775,000. As a result of the merger Premier
indirectly acquired 100% of the stock of First National Bank of
Northbrook, Northbrook, Illinois and First Security Bank of Cary
Grove, Cary, Illinois. The acquisition was accounted for as a
purchase transaction. The aggregate of cash and shares exchanged for
First Northbrook Bancorp, Inc. was as follows:
<TABLE>
<S> <C>
Premier Series B - Convertible Preferred Stock (5,950 shares) $5,950,000
Premier Series C - Noncumulative Perpetual Preferred Stock (1,950 shares) 1,950,000
Premier Series D - Noncumulative Perpetual Preferred Stock (3,300 shares) 3,300,000
Premier Common Stock 5,250,000
Cash (loan from third party lender) 16,325,000
Total Purchase Price $32,775,000
</TABLE>
In addition, the Company issued $5,000,000 of new Series A
cumulative perpetual preferred stock. The proceeds were used to
retire First Northbrook Bancorp, Inc.'s perpetual preferred stock in
the amount of $2,000,000 and reduce acquisition debt. A summary of
the features of each series of preferred shares follows:
Series A - Redeemable after three years at option of the Company at
par value. Stock has cumulative dividend feature and is
non-voting. Dividend rate of 8.25% changes to the
higher of 8.25% or the Prime rate plus 1% after July 16,
1996, 8.25% or the Prime rate plus 1.25% after July 16,
1998, 8.25% or the Prime rate plus 1.50% after July
16, 2000 and 8.25% or the Prime rate plus 1.75% after
July 16, 2002.
Series B - Non-voting, convertible to common stock at $9.50 per
share. Conversion price adjusted for cumulative stock
dividends and splits. Regulatory approval required
before conversion of shares. Dividend rate of 7.50%
increases to 8.00% after July 16, 1996.
30
Series C - Non-voting, redeemable by the Company at any time at par
value with regulatory approval. Dividend rate of 7.00%
increases .25% each year after July 16, 1996 to a
maximum of 9.00%.
Series D - Non-voting, convertible at any time up to $1,300,000
into Series B shares at par, subject to availability of
sufficient authorized common shares. Dividend rate
of 9.00% at December 31, 1993 and 7.50% thereafter.
The unaudited pro forma results of operations which follow (in
thousands) assume the
acquisition had occurred at the beginning of each period presented.
In addition to combining the historical results of operations of the
two companies, the pro forma calculations include adjustments for
purchase accounting related to the acquisition and interest on
borrowed funds.
Year ended December 31, 1993 Pro Forma
Net interest income $21,902
Earnings before income taxes 3,565
Net earnings $2,462
Primary earnings per common share $ .18
Year ended December 31, 1992 Pro Forma
Net interest income $23,023
Earnings before income taxes 5,453
Net earnings $3,816
Primary earnings per common share $ .38
The pro forma results of operations are not necessarily indicative of
the actual results of operations that would have occurred had the
purchase actually been made at the beginning of the respective
periods, or of results which may occur in the future.
31
13. Condensed financial information (Parent Company only)
The following is a summary of condensed financial information for the
Parent Company only (in thousands):
<TABLE>
<CAPTION>
Condensed balance sheets December 31,
1994 1993
Assets
<S> <C> <C>
Investments in subsidiaries $61,774 $64,472
Cash & interest bearing deposits 16 19
Premises and equipment 4,680 4,694
Other assets 38 313
Total assets $66,508 $69,498
Liabilities and stockholder's equity
Short-term borrowings $12,210 $12,410
Other liabilities 1,821 1,672
Total liabilities 14,031 14,082
Stockholder's equity 52,477 55,416
Total liabilities and stockholder's equity $66,508 $69,498
</TABLE>
32
<TABLE>
Condensed statements of earnings
<CAPTION>
For the years ended December 31,
1994 1993 1992
Income:
<S> <C> <C> <C>
Dividends from subsidiaries $5,145 $8,250 $3,650
Other 2,940 2,706 1,269
8,085 10,956 4,919
Expenses:
Interest 902 452 47
Salaries 2,670 2,263 1,346
Other 1,285 1,135 1,015
4,857 3,850 2,408
Earnings before income tax benefit and equity
in undistributed earnings of subsidiaries 3,228 7,106 2,511
Income tax benefit 587 272 61
Earnings before equity in undistributed
earnings of subsidiaries 3,815 7,378 2,572
Equity in undistributed earnings of
subsidiaries 1,895 ( 3,367) 1,780
Net earnings $5,710 $ 4,011 $4,352
Earnings per share $ .68 $ .55 $ .74
</TABLE>
33
<TABLE>
<CAPTION>
Condensed statements of cash flows
For the years ended December 31,
1994 1993 1992
Operating activities:
<S> <C> <C> <C>
Net cash provided by operating activities $ 4,095 $ 7,649 $2,859
Investing activities:
Additional paid in capital subsidiaries - (5,950) (243)
Cash paid for acquisition of subsidiaries - (16,325) -
Purchase of bank premises and equipment (76) ( 47) (4,361)
Net cash used by investing activities (76) (22,322) (4,604)
Financing activities:
Increase (decrease) in short-term debt (200) 10,530 1,620
Redemption of Series C Preferred stock (1,950) - -
Purchase of treasury stock - ( 209) -
Reissuance of treasury stock 59 - -
Dividends paid (2,374) ( 1,574) (831)
Other 443 935 931
Issuance of stock - 5,000 -
Net cash provided (used) by financing activities (4,022) 14,682 1,720
Increase (decrease) in cash (3) 9 $(25)
Cash paid (received) for
Interest $1,031 $ 290 $43
Income taxes (1,168) ( 273) (550)
</TABLE>
34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The discussion presented below provides an analysis of the
Company's financial condition and results of operations for the
past three years, and is intended to cover significant factors
affecting the Company's overall performance during that time. It
is designed to provide shareholders with a more comprehensive
review of the operating results and financial condition than could
be obtained from an examination of the financial statements alone,
and should be read in conjunction with the consolidated financial
statements, accompanying notes and other financial information
presented in the 1994 Annual report to shareholders.
Results of Operations
Net earnings available to common shareholders for 1994 (i.e., net
earnings less preferred dividends) totaled $4.5 million, or $.68
per common share, compared with $3.4 million, or $.55 per share, in
1993. In 1992, net income was $4.4 million or $.74 per share.
Prior years' earnings per share amounts have been restated to
retroactively reflect the three-for-one stock dividend affected in
1994. Premier's return on average common equity was 11.11% in
1994, 10.80% in 1993 and 14.58% in 1992. Return on average assets
was .95%, .83%, and 1.15% in 1994, 1993 and 1992 respectively. Our
financial results in 1994 and 1993 as compared to 1992 were
primarily influenced by two factors: 1) our acquisition of First
Northbrook Bancorp, Inc. ("Northbrook") in July, 1993, and 2)
concurrent short-term actions to improve on asset quality and
increase long-term operating efficiency.
Net Interest Income
Tax equivalent net interest income for 1994 was $22.8 million, as
compared to $18.8 million in 1993 and $15.9 million in 1992. The
increases in 1994 and 1993 were primarily from interest earning
assets added through the Northbrook acquisition. Average earning
assets totaled $527.4 million in 1994 versus $423.4 million and
$342.9 million in 1993 and 1992, respectively. Our net interest
margin was 4.32% in 1994 as compared to 4.43% in 1993 and 4.62% in
1992. The decrease in net interest margin from 1992 to 1993 was
primarily the result of narrowed spreads due to lower interest
rates. The year-to- year decrease in 1994 as compared to 1993 was
a function of a change in asset mix (i.e. lower average outstanding
loans) coupled with continued narrowing spreads due to lower
interest rates. Average loans as a percentage of average earning
assets were 55.4% in 1994, 64.7% in 1993 and 65.1% in 1992. An
analysis of our net interest margin from 1993 to 1994 reflects a 26
basis point decrease in the average yield on earning assets while
the average cost of funds decreased 14 basis points, resulting in a
lower net interest margin. In 1993 the yield on average earning
assets was 108 basis points less than in 1992, while cost of funds
declined by 89 basis points.
Interest Rate Risk Management
Movements in general market interest rates are a key element in
35
changes in net interest margin. The impact on earnings of changes
in interest rates, known as interest rate risk, must be measured
and managed to avoid unacceptable levels of risk. Premier uses
simulation modeling to analyze the effect of predicted or assumed
changes in interest rates on balances and subsequently net interest
income, and to manage interest rate risk. Our model provides for
simultaneously comparing four different interest rate scenarios and
their impact on net interest income over a two year horizon. The
"most likely" rate scenario is predicated on an economic consensus
of future movements in short-term interest rates. A "rising" and
"declining" rate scenario are used to identify the potential impact
of rapid changes, up or down, from current rates. The fourth
scenario, i.e. the "base" or "flat rate" simulation, is used as a
control to quantify the effect of changes in net interest income
caused solely by repricing existing balances at current rates as
they mature. Changes in balances reflecting repayment risk, likely
changes in customer behavior under different interest rate
environments and other "what if" assumptions can also be simulated
under each scenario. Our interest sensitivity, i.e., our exposure
to change in net interest income is measured over a rolling 12
month period under each of the first three scenarios and compared
to the base case forecast. In January, 1995, the simulation model
indicated rate sensitivity (i.e., a change in net interest income)
of less than 3.00% in either a rising or declining rate
environment. We would experience an increase in net interest
income under the most likely simulation, assuming no action was
taken. Generally, our policy is to maximize net interest income
while limiting our negative interest sensitivity ( i.e., a decline
in net interest income) to no more than 10% of after tax earnings
under any interest rate scenario.
We believe earnings simulation under a variety of interest rate and
balance assumptions provides a more relevant depiction of interest
rate risk than traditional "gap measurement" because it includes
all of the significant variables that affect net interest income.
Under gap, which is similar to the base or flat rate simulation,
the only variable considered is rate. Our one year interest
sensitivity, using gap measurement as of December 31, 1994, shows
that more assets than liabilities would reprice, theoretically
resulting in improved net interest income in a rising rate
environment. The following table shows our gap position at year
end:
Volumes Subject to Repricing
($ in thousands)
within within within over
90 days 180 days 1 year 1 year
Loans (net of unearned
income) .................... $163,865 $13,085 $19,335 $ 88,171
Investment securities ....... 49,666 23,351 60,191 115,270
Other earning assets ........ 14,684 - - -
Total earning assets ...... 228,215 36,436 79,526 203,441
Interest-bearing deposits ... 97,714 36,454 42,044 261,463
Short-term borrowings ....... 39,937 1,134 1,200 -
Total interest-bearing
liabilities ............... 138,651 37,488 43,244 261,463
Asset (liability) gap ..... 89,564 ( 1,052) 36,282 (58,022)
Cumulative asset
(liability) gap .......... 89,564 88,512 124,794 66,772
36
Provision for Possible Loan Losses
The amount of the provision for possible loan losses is based on
periodic (but no less than quarterly) evaluations by management. In
these evaluations, we consider numerous factors including, but not
limited to, current economic conditions, loan portfolio composition,
prior loan loss experience, and an estimation of potential losses.
Each loan in the portfolio is graded according to specific financial,
risk and repayment criteria. The aggregate required reserve balance
for the entire portfolio is maintained through earnings provisions as
required. Our provision for loan losses in 1994 totaled $200,000 as
compared to $1.6 million and $325,000 in 1993 and 1992, respectively.
The decrease in the Allowance for Possible Loan Losses was primarily a
result of improved asset quality and lower outstanding loan balances,
resulting in a lower aggregate reserve requirement. (See "Asset
Quality".) At December 31, 1994 the allowance for possible loan
losses totaled $3.7 million, or 1.30% of gross loans compared to $4.4
million, or 1.32% of gross loans at December 31, 1993. Although we
believe that the present level of the Allowance for Possible Loan
Losses is a conservative assessment of the risk inherent in our loan
portfolio, there can be no assurance that significant provisions for
losses will not be required in the future based on factors such as
deterioration of market conditions, major changes in borrowers'
financial conditions, delinquencies and defaults. Future provisions
will continue to be determined in relation to overall asset quality as
well as other factors mentioned previously.
NonInterest Income
Total noninterest income, exclusive of investment security gains,
increased $794,000, or 13.6%, to $6.7 million in 1994 from $5.9
million in 1993. This improvement followed a $1.4 million, or 32.6%,
increase in 1993 over 1992. Trust fees and service charges on
deposits continue to be the primary components of noninterest income.
Revenue from other fee-based services and products also increased
modestly.
Trust fees, which represent Premier's largest fee-based source of
income, increased by 9.5% in 1994. The increase was primarily the
result of an increasing customer base. Trust fees are based on
providing fiduciary, investment management, custodial and related
services to corporate and personal clients. As of December 31, 1994,
managed assets were approximately $.5 billion. A significant portion
of the growth experienced in Trust relationships came from our new
market areas. We anticipate continued growth in relationships and
fees in 1995.
Service charges on deposit accounts rose 30.1%, to $1.9 million in
1994 from $1.5 million in 1993 following a 56.9% increase over 1992.
The increases in service charges on deposit accounts are primarily due
to an increase in fees from overdrafts and an overall increase in
deposits resulting from the acquisitions.
Another significant source of noninterest income over the past several
years has been premiums recognized on sales of residential mortgage
loans to the secondary market. The low interest rate environment
37
experienced from 1992 through the first quarter of 1994 created an
increase in loan refinancing. As a result, net gains from the sale of
residential mortgage loans added $170,000, $585,000 and $429,000 of
after-tax earnings for the years 1994, 1993 and 1992, respectively.
As rates continue to rise, both refinancing and premiums recognized on
loans sold to the secondary market will decrease. Since Premier
retains the servicing rights to loans sold on the secondary market, we
anticipate that servicing fee income will offset some of the lost
revenue.
Net investment security gains were $35,000 in 1994 as compared to
$136,000 in 1993 and $358,000 in 1992. As conditions change over
time, the overall interest rate risk, liquidity demands and potential
return on the investment security portfolio will change. Securities
available for sale may be sold in order to manage interest rate risk,
optimize overall investment returns, respond to changes in the credit
risk of a particular security, or meet liquidity needs.
Other operating income increased by $776,000 from 1993 to 1994,
following an increase of $366,000 the previous year. The increase in
other operating income was primarily revenue from fee based services
and products and prior years' recoveries of interest income.
Approximately $396,000 of the increase from 1993 to 1994 related to
interest collected but not accrued on loans from prior years.
Noninterest Expense
Total noninterest expenses increased by $3.3 million to $19.8 million
in 1994 as compared to $16.5 million in 1993. Salaries and benefits,
the largest component of non-interest expense, totaled $8.9 million in
1994 an increase of $1.2 million or 16.2% over 1993. In 1993 salaries
and benefits increased approximately $800,000 (including one-time
acquisition related severance payments totaling approximately
$147,000) over 1992. Year-to-year increases primarily reflect an
increase in average full-time equivalent employees as a result of the
Northbrook acquisition. Average FTE employees were 220 at December
31, 1992, 286 at year end 1993, and 306 at December 31, 1994.
Combined net occupancy and furniture and fixture expense increased
$483,000 and $587,000 in 1994 and 1993, respectively. The increase in
combined net occupancy and furniture and fixture expense is largely
the result of the six new office locations acquired in Northbrook,
Riverwoods and Cary, Illinois in July 1993. In December 1994, we
added a new office location in DeKalb, Illinois. Net occupancy and
furniture and fixture costs relating to the new facility were minimal.
We anticipate future increases in net occupancy and furniture and
fixtures costs for existing offices will be modest.
In 1994, Premier's subsidiary banks paid $1.2 million for federal
deposit (FDIC) insurance as compared to $918,000 in 1993 and $651,000
in 1992. This expense rises as deposits grow or the assessment rate
changes. The 1994 and 1993 increased FDIC expense is attributable to
an increase in deposits from the Northbrook acquisition and from
returning approximately $16.6 million of discretionary funds to
interest bearing deposits in the second quarter of 1994. Each of the
subsidiary banks pay the lowest premium rate currently available.
Amortization of intangible assets was $1.6 million in 1994 compared to
834,000 in 1993 and $194,000 in 1992. The increases in 1994 and 1993
relate to the additional amortization expense from the excess cost
over fair value of net assets acquired in July 1993, from the
38
Northbrook acquisition.
Other operating expenses increased by $566,000, or 12.6% in 1994,
following a $1.0 million, or 29.7%, increase in 1993. As a result of
our aggressive collection efforts, legal fees, collection costs and
expenses associated with temporary holding of other real estate for
sale increased by $138,000 from 1993 to 1994. The remaining 1994
increase relates to operating the six new offices acquired in July
1993 for a full year and start-up costs for the DeKalb office
purchased in December, 1994. Amortization of the $1.1 million premium
paid for deposits purchased in the DeKalb transaction are amortized
over 10 years and consequently did not materially impact 1994
operating expenses.
Income Taxes
Taxes on earnings increased to $2.4 million in 1994 from $1.6 million
in 1993. In 1992 taxes on earnings totaled $2.0 million. In February
1992, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Statement 109 requires a change from the deferred method under
APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income
taxes are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment
date.
Premier adopted FAS Statement 109, "Accounting for Income Taxes" in
January 1993 and implementation had an immaterial effect on results
of operations and financial position. We perform a detailed analysis
of our deferred tax position on a quarterly basis. It includes
scheduling both taxable and deductible temporary differences in
accordance with their respective reversal periods, projecting future
taxable income and reviewing available tax planning strategies. At
December 31, 1994, Premier had deferred tax liabilities of $2.1
million and deferred tax assets of $5 million. A valuation allowance
of $950,000 has been provided for deferred tax assets. As a result,
net deferred tax assets recorded in the consolidated financial
statements equal $1.95 million.
Financial Condition
At December 31, 1994, Premier had total assets of $620.5 million, as
compared to $610.7 million at December 31, 1993.
Securities
Securities available for sale are a part of Premier's interest rate
risk management strategy and may be sold in response to changes in
interest rates, changes in prepayment risk, liquidity management and
other factors. Premier adopted FAS No. 115 entitled "Accounting for
Certain Investments in Debt and Equity Securities" on January 1, 1994.
Prior to adoption, securities "available for sale" were reported at
the lower of cost or fair market value. FAS No. 115 requires
securities available for sale to be reported at fair market value,
39
with unrealized gains and losses excluded from earnings but reported
as a separate component of stockholders' equity. At December 31,
1994, we had $208 million in securities available for sale, compared
with $140.7 million at year end 1993. The increase in securities
available for sale reflected a change in asset mix due to lower
outstanding loans. In addition, approximately $16.6 million of
discretionary funds were invested in interest bearing deposits and the
proceeds were invested in securities. At December 31, 1994
investments held-to-maturity increased to $40.5 million from $39.8
million at year end 1993.
Loans
Our lending strategy continues to stress quality growth, diversified
by product, geography and industry. Total loans decreased by $47.1
million, to $284.8 million at December 31, 1994 from $331.9 million in
1993. The decrease in loans was primarily a result of 1) customers
refinancing existing residential real estate loans carried on the
Company's balance sheet and then selling the new loan origination to
the secondary market, and 2) actions taken to improve overall loan
portfolio quality. Approximately $18.9 million, or 40%, of the $47.1
million decrease in loans was from sales of refinanced residential
real estate mortgages. By continuing to service these loans without
carrying them on our balance sheet we've locked in an income stream
without taking an interest rate risk as rates rise. The remainder of
the decrease (approximately $28.2 million) was directly or indirectly
a result of collection actions. Although total loans declined from
year end 1993 to 1994, we are encouraged by the quality loan growth
experienced in the fourth quarter of 1994. Most of the fourth quarter
growth (which approximated an increase of 11.2% on an annualized
basis) came in the commercial sector. Loan portfolio distribution at
December 31, 1994, was 51% commercial, 38% retail, and 11%
agricultural. The portfolio mix and concentration have not changed
significantly from year-end 1993. Preserving loan quality and
diversifying the loan portfolio both geographically and by industry
continue to be key objectives for Premier.
Asset Quality
Asset quality improved significantly in 1994. At year end,
nonperforming assets declined to $7.1 million, or 1.14% of total
assets, down from $13.2 million, or 2.16% of total assets at December
31, 1993. Net charge-offs as a percentage of average loans were .30%
in 1994, compared with .83% and .36% in 1993 and 1992, respectively.
Premier intends to continue devoting the resources necessary to bring
nonperforming assets within levels consistent with the Company's
historical standards of quality. Although aggressive collection
actions may result in increased costs such as legal fees, expenses
associated with temporarily holding other real estate for sale and
miscellaneous collection costs, we believe aggressive collection
continues to be prudent.
In October 1994, the FASB issued SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures." This statement applies to all creditors, and amends
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan."
SFAS No. 114 states that impaired loans will be recorded at the
present value of future principal and interest expected to be
collected using the loan's contractual interest rate adjusted for
deferred fees and unamortized premium/discounts. SFAS No. 118
eliminates the income recognition provisions that had been included in
40
SFAS No. 114. Creditors are permitted to use existing methods for
recognizing interest income on impaired loans. SFAS No. 118
acknowledges that certain existing methods can result in the recorded
investment in an impaired loan being less than the present value of
expected future cash flows. These methods include cost recovery, cash
basis, or some combination. The provisions of SFAS No. 118 are
effective concurrent with the effective date of SFAS No. 114. SFAS
No. 114 is effective for financial statements for fiscal years
beginning after December 15, 1994. Premier adopted SFAS No. 114 and
SFAS No. 118 in January 1995 and implementation had an immaterial
effect on the financial condition of the Company.
Sources of Funds
Premier's primary source of lendable funds is deposits, which totaled
$523.7 million at December 31, 1994 and $518.0 million at December 31,
1993. The increase is primarily the result of returning approximately
$16.6 million of discretionary funds back to interest bearing deposits
and purchasing $11.2 million of deposits in the DeKalb office
transaction. Excluding these two sources of funds, total deposits
would have decreased by $22.1 million. Much of the deposit runoff was
experienced in the first six months of 1994. In general, the decline
represented a continuation of a trend which has significantly reduced
the banking industry's share of the total financial marketplace. Many
customers prefer the flexibility and advantages of non-regulated (and
non-insured) alternatives such as mutual funds. As interest rates in
general increased during the latter half of the year, deposits became
relatively more attractive in relation to other saving/investment
alternatives. Total deposits excluding the DeKalb office transaction
increased $13.1 million during the fourth quarter of 1994, resulting
in the small year-to-year increase. If market rates stabilize or
continue to increase it is reasonable to assume deposits will remain
relatively attractive. Rates paid on deposits are generally
competitive with the rates paid by other banks for such deposits.
Liquidity
Premier defines liquidity as having funds available to meet cash flow
requirements. Effective management of balance sheet liquidity is
necessary to fund growth in earning assets, to pay liabilities, to
satisfy depositors' withdrawal requirements and to accommodate changes
in balance sheet mix. Premier has three major sources of generating
cash other than thru operations: 1) primary and secondary market
deposits, 2) securities available for sale, and 3) lines of credit
from unaffiliated banks. An ongoing analysis of liquidity is
performed at the subsidiary and Holding Company levels. Liquid assets
are compared to the potential needs for funds to determine if the
Company has sufficient coverage should any significant negative events
occur. Management maintains a primary and total liquidity position
that provides 100% coverage relative to the anticipated likelihood of
potential events taking place. At year end, our liquidity coverage
exceeded this position.
Capital and Debt Service Requirements
Prior to July 1993, Premier had no significant commitments for debt
servicing nor dividends on preferred stock. Concurrent with the
Northbrook acquisition, the Company's commitments in this regard
changed substantially. At year end 1994, bank debt totaled $12.2
million down from $12.4 million at year end 1993. Preferred Stock
outstanding at December 31, 1994 was $14.2 million as compared to
41
$16.2 million in 1993. In the third quarter of 1994, we redeemed all
of the outstanding Series C Preferred Stock. In addition, we
converted $1.3 million of Series D Preferred Stock to Series B
Convertible Preferred Stock, effectively lowering the dividend rate on
the entire $3.3 million of previously outstanding Series D shares from
9.00% to 7.50%. It is estimated that during 1995, cash requirements
for interest on the debt, projected dividends on common stock, and
dividends on preferred stock will approximate $3.3 million. The
Company has two sources of cash to meet these requirements: 1)
dividends from subsidiary banks and 2) additional borrowing. Based
upon current projections, management believes that earnings generated
by the Company's subsidiary banks will be more than sufficient to
support the required dividend and interest payments.
Equity Capital
Total equity capital decreased by $2.9 million during 1994, from $55.4
million at December 31, 1993 to $52.5 million in 1994. The decrease
was due to a Preferred Stock redemption of $1.9 million and recording
an after tax unrealized loss on securities available for sale of
approximately $4.4 million in accordance with Statement of Financial
Accounting Standards No. 115 ("FAS 115"). The total of these items
exceeded current year retained earnings. As a result of the stock
redemption, annualized after tax income available to common
shareholders was increased by $186,000. The unrealized loss recorded
pursuant to FAS 115 will change from time to time based on current
market rates of interest. Generally, a loss would be incurred on
securities available for sale only if those securities were sold prior
to maturity. We do not anticipate liquidating our securities
available for sale and realizing the loss.
The Federal Reserve Board currently specifies three capital
measurements under the risk-based capital guidelines: 1) "Tier 1
Capital" (i.e., common stockholders' equity less goodwill to risk-
adjusted assets), 2) "Total Risk Based Capital" (i.e., Tier 1 Capital
plus the lesser of 1.25% of risk-adjusted assets or the allowance for
possible loan losses to risk-adjusted assets), and 3) "Tier 1 Leverage
Ratio" (i.e., common stockholders' equity less goodwill to total
assets less goodwill). Bank holding companies are required to
maintain minimum risk-based capital ratios of 4% for "Tier 1," 8% for
"Total Risk-Based Capital," and a "Leverage Ratio of 3% or greater.
At December 31, 1994, Premier had a "Tier 1" ratio of 10.37%, well
above the Regulatory minimum. Our "Total Risk Based Capital Ratio"
was 11.49%, and our "Leverage Ratio" was 5.71%, also considerably
better than required. In addition, all of the banking subsidiaries
met the definition of "well-capitalized" under the FDIC's risk related
premium system at December 31, 1994.
Overview
1994 was a year of significant change for the financial services
industry and for Premier. We expect that change will continue and
accelerate. In the second half of 1993 and in 1994 we experienced all
of the challenges we identified prior to expanding our Company by
almost 70%. During that time, we met those challenges while
significantly expanding our market areas. The end result was a
measurable improvement in financial performance.
42
PREMIER FINANCIAL SERVICES, INC. is a registered bank holding company.
Premier was established under Delaware Law on December 31, 1976. The
operations of Premier and its subsidiaries consist primarily of
financial activities common to the commercial banking industry, as
well as trust and investment services, data processing and electronic
banking services and insurance. Services are extended to individuals,
businesses, local government units and institutional customers
throughout Northern Illinois. As of December 31, 1994, Premier's
banking offices and nonbanking affiliations were as follows:
First Bank/Freeport
First Bank/Dixon
First Bank/Mt. Carroll
First Bank/Polo
First Bank/Stockton
First Bank/Sterling
First Security Bank of Cary-Grove
First Bank/Rockford
First National Bank of Northbrook
First Bank/Warren
First Bank/DeKalb
Premier Trust Services, Inc.
Premier Insurance Services,
Premier Operating Systems, Inc.
Stock information
Our common stock is traded on the NASDAQ National Over-the-Counter
market and is listed under the symbol PREM. A two-year record, by
quarter, of high and low bid prices, as well as cash dividends
declared, is as follows:
<TABLE>
<CAPTION>
1994 1993
Cash Cash
Quarter High Low Dividends Quarter High Low Dividends
<C> <C> <C> <C> <C> <C> <C> <C>
1st 6.33 5.83 .043 1st 7.33 6.50 .04
2nd 6.33 5.83 .043 2nd 7.25 6.17 .04
3rd 8.25 6.75 .047 3rd 7.67 6.33 .04
4th 8.25 6.50 .047 4th 7.83 7.08 .04
Total .18 Total .16
</TABLE>
A three-for-one stock split in the form of a 200% stock dividend was
declared and distributed as follows:
1994
Declaration date April 28, 1994
Record date June 8, 1994
Payable date July 1, 1994
43
10K notice The Annual Report to the Securities and Exchange Commission,
Form 10-K, may be obtained by shareholders free of charge upon written
request to the Secretary of the Corporation, Premier Financial Services,
Inc., 27 West Main St., Suite 101, Freeport, IL 61032.
<TABLE>
<CAPTION>
Five Year Summary of Selected Financial Data
Earnings 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Interest income $36,527,016 $30,441,589 $28,353,205 $30,634,167 $31,598,122
Interest expense 15,129,406 12,750,769 13,358,608 17,366,302 19,898,067
Net interest income 21,397,610 17,690,820 14,994,597 13,267,865 11,700,055
Provision for possible
loan losses 200,000 1,620,000 325,000 - -
Earnings before income
taxes 8,120,003 5,591,280 6,335,317 4,920,829 3,819,099
Net earnings 5,710,295 4,011,210 4,352,115 3,618,395 2,882,105
Net earnings available to
common shareholders 4,505,737 3,418,928 4,352,115 3,618,395 2,882,105
</TABLE>
<TABLE>
<CAPTION>
Per share statistics * -
Common 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net earnings $ .68 $ .55 $ .74 $ .64 $ .49
Cash dividend declared .18 .16 .15 .11 .08
Book Value 5.88 6.04 5.49 4.85 4.30
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
Common shares
<S> <C> <C> <C> <C> <C>
outstanding - year end 6,504,876 6,489,321 5,782,608 5,756,151 5,635,338
</TABLE>
44
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
Rate earned on beginning
<S> <C> <C> <C> <C> <C>
stockholders' equity 10.30% 12.64% 15.58% 14.93% 12.75%
</TABLE>
<TABLE>
<CAPTION>
Financial position - year
end 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Securities held-to-maturity $40,513,480 $39,787,245 $28,314,011 $125,390,853 $157,054,94
Securities available for
sale 207,964,644 140,699,066 77,520,998 - -
Loans, net 280,767,645 327,018,113 217,249,829 211,540,534 176,549,802
Allowance for possible loan
losses 3,688,386 4,369,290 2,712,863 3,202,509 3,159,714
Excess cost over fair value
of net assets acquired 21,600,583 23,193,016 3,009,951 3,204,148 3,399,302
Noninterest bearing
deposits 86,018,604 104,976,862 49,979,533 40,304,642 44,142,877
Interest bearing deposits 437,674,799 413,042,081 258,913,579 246,474,882 247,248,068
Total deposits 523,693,403 518,018,943 308,893,112 286,779,524 291,390,945
Short-term borrowings 26,185,000 12,410,000 6,152,000 14,501,000 7,302,000
Securities sold under
agreements to repurchase 16,085,872 20,571,658 14,854,410 43,687,552 50,534,481
Long-term debt - - - - 1,119,264
Stockholders' equity 52,476,832 55,416,039 31,737,646 27,929,137 24,228,635
Total assets 620,503,737 610,663,210 364,024,410 375,494,615 377,431,653
</TABLE>
* Per share statistics have been adjusted to reflect 5% stock dividends to
shareholders of record February 28, 1990, February 28, 1991, 10% stock
dividend to shareholders of record February 28, 1992, and a three-for-one
stock split i the form of a 200% stock dividend to shareholders of record
June 8, 1994.
45
Board of Directors Principal Occupation Principal Business
Donald E. Bitz Retired Chairman of the Insurance Company
Board & Chief Executive
Officer
Economy Fire & Casualty Co.
R. Gerald Fox President & Chief Executive Publisher of financial
Officer books and periodicals
F.I.A. Financial Publishing
Company
Richard L. Geach President & Chief Executive
Officer
Charles M. Luecke President, Luecke Jewelers, Retail Jeweler
Inc.
Edward G. Maris Senior Vice President, CFO, Raw steel production
Secretary and Treasurer, and finished steel/wire
Northwestern Steel and products
Wire Company
David L. Murray Executive Vice President &
Chief Financial Officer
H. Barry Musgrove President, Frantz Manufacturer of anti-
Manufacturing Company friction products
Dr. Joseph C. Piland Educational Consultant &
Retired President, Highland
Community College
46
Exhibit 21
Subsidiaries of Company
Listed below is a list of the Company's subsidiaries and the state
or jurisdiction of their incorporation as of December 31, 1994.
The Company is incorporated in the State of Delaware.
First Bank North Illinois state banking laws
First Bank South Illinois state banking laws
First National Bank of Northbrook National banking laws
First Security Bank of Cary Grove Illinois state banking laws
Premier Acquisition Company State of Delaware
Premier Trust Services, Inc. State of Illinois
Premier Insurance Services, Inc. State of Illinois
Premier Operating Systems, Inc. State of Illinois
Exhibit 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We consent to incorporation by reference in the registration
Statements on Forms S-8 of Premier Financial Services, Inc.
of our report dated January 27, 1995, relating to the consolidated
balance sheets of Premier Financial Services, Inc. and Subsidiaries
as of December 31, 1994 and 1993, and
the related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1994, which report appears is
incorporated by reference in the December 31, 1994 annual report on
Form 10-K of Premier Financial Services, Inc.
KPMG Peat Marwick LLP
Chicago, Illinois
March 21, 1995
EXHIBIT 99(a)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
ANNUAL REPORT
Pursuant to Section 15 (d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1994
PREMIER FINANCIAL SERVICES, INC.
EMPOYEE SAVINGS AND STOCK PLAN
(Full title of the Plan)
PREMIER FINANCIAL SERVICES, INC.
27 WEST MAIN STREET
FREEPORT, IL 61032
(Name of issuer of the Securities held pursuant to the Plan and
the address of principal executive offices, including Zip Code)
Required Information
Financial Statements
The following financial statements are filed as part of this
report:
(a) Financial Statements of the Plan which are included in
the annual report of the Plan to its Participants for the
year ended December 31, 1994 as follows:
Independent Auditors' Report
Statements of Net Assets Available for Plan Benefits
December 31, 1994 and 1993
Statements of Changes in Net Assets Available for Plan
Benefits for the two years ended December 31, 1994
Notes to Financial Statements
Schedule I - Assets held for investment
Schedule II - Reportable transactions
(b) Exhibit
23. Consents of Experts and Counsel.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees have duly caused this annual report to be signed
on its behalf by the undersigned hereunto duly authorized.
Premier Financial Services, Inc.
Employee Savings and Stock Plan
March 23, 1995 By: David L. Murray
David L. Murray, Executive
Vice President, Chief
Financial Officer and Director
Appendix
Pursuant to paragraph 232.311 (c) of Regulation S-T, Premier
Financial Services, Inc. is submitting on paper under cover of Form SE
the financial statements of the Plan which are included in the annual report
of the Plan to its participants for the year ended December 31, 1994.
Exhibit 23
CONSENTS OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Premier Financial Services, Inc.:
We consent to incorporation by reference in the Registration Statement on
Form S-8 of Premier Financial Services, Inc. of our report dated March 3,
1995 relating to the statements of net assets available for plan benefits
of Premier Financial Services, Inc. Employee Savings and Stock Plan and
Trust as of December 31, 1994 and 1993, and the related statements of
changes in net assets available for plan benefits for the years then ended,
which report appears on Form 11-K of the Premier Financial Services, Inc.
Employee Savings and Stock Plan and Trust.
KPMG Peat Marwick LLP
Chicago, Illinois
March 21, 1995
EXHIBIT 99(b)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
ANNUAL REPORT
Pursuant to Section 15 (d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1994
PREMIER FINANCIAL SERVICES, INC.
SENIOR LEADERSHIP AND DIRECTORS
DEFERRED COMPENSATION PLAN
(Full title of the Plan)
PREMIER FINANCIAL SERVICES, INC.
27 WEST MAIN STREET
FREEPORT, IL 61032
(Name of issuer of the Securities held pursuant to the Plan and
the address of principal executive offices, including Zip Code)
Required Information
Financial Statements
The following financial statements are filed as part of this
report:
(a) Financial Statements of the Plan which are included in
the annual report of the Plan to its Participants for the
year ended December 31, 1994 as follows:
Independent Auditors' Report
Statement of Net Assets Available for Plan Benefits
December 31, 1994
Statement of Changes in Net Assets Available for Plan
Benefits for the period form August 1, 1994 (commencement
of operations) to December 31, 1994
Notes to Financial Statements
(b) Exhibit
23. Consents of Experts and Counsel
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees have duly caused this annual report to be signed
on its behalf by the undersigned hereunto duly authorized.
Premier Financial Services, Inc.
Senior Leadership and Directors
Deferred Compensation Plan
March 23, 1995 By: David L. Murray
David L. Murray, Executive
Vice President, Chief
Financial Officer and Director
PREMIER FINANCIAL SERVICES, INC.
SENIOR LEADERSHIP AND DIRECTORS
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
Page(s)
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . 1
Statement of Net Assets Available for Plan Benefits. . . . . . . . 2
Statement of Changes in Net Assets Available for Plan Benefits . . 3
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . 4-6
Independent Auditors' Report
The Board of Directors
Premier Financial Services, Inc.
For the Premier Financial Services, Inc.
Senior Leadership and Directors
Deferred Compensation Plan:
We have audited the accompanying statement of net assets available for plan
benefits of the Premier Financial Services, Inc. Senior Leadership and
Directors Deferred Compensation Plan (Plan) as of December 31, 1994 and the
related statement of changes in net assets available for plan benefits for
the period from August 1, 1994 (commencement of operations) to December 31,
1994. These financial statements are the responsibility of the Plan's
administrator. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by the Plan's administrator, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the
Premier Financial Services, Inc. Senior Leadership and Directors Deferred
Compensation Plan as of December 31, 1994, and the changes in net assets
available for plan benefits for the period from August 1, 1994 (commencement
of operations) to December 31, 1994 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 3, 1995
PREMIER FINANCIAL SERVICES, INC.
SENIOR LEADERSHIP AND DIRECTORS
DEFERRED COMPENSATION PLAN
Statement of Net Assets Available for Plan Benefits
December 31, 1994
Assets:
Cash and cash equivalents $ 215
Premier Financial Services Inc., common stock,
7,917 shares at fair value (cost-$59,042) 55,419
Contributions receivable 17,426
$73,060
See accompanying notes to financial statements.
PREMIER FINANCIAL SERVICES, INC.
SENIOR LEADERSHIP AND DIRECTORS
DEFERRED COMPENSATION PLAN
Statement of Changes in Net Assets Available for Plan Benefits
Period from August 1, 1994 (commencement of
operations) to December 31, 1994
Contributions:
Participant $61,221
Employer 15,293
Total contributions 76,514
Dividends on Premier Financial Services, Inc. common stock 169
Net depreciation in Premier Financial Services, Inc.
common stock (3,623)
Total additions 73,060
Net assets available for plan benefits:
Beginning of year -
End of year $73,060
See accompanying notes to financial statements.
PREMIER FINANCIAL SERVICES, INC.
SENIOR LEADERSHIP AND DIRECTORS
DEFERRED COMPENSATION PLAN
Notes to Financial Statements
December 31, 1994
(1) Description of Plan
The following description of the Premier Financial Services, Inc.
(Company) Senior Leadership and Directors Deferred Compensation Plan
(Plan) provides only general information. Participants should refer to
the Plan Agreement for a more complete description of the Plan's
provisions. The Company is responsible for the general operation and
administration of the Plan.
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles and present the net assets
available for plan benefits and changes in net assets available for plan
benefits.
(a) Eligibility
The Plan, established in 1994, is a defined contribution plan covering
senior leadership employees of the Company as designated by the Board of
Directors and those individuals who serve as directors of the Company.
At December 31, 1994 there were 13 participants in the Plan.
(b) Contributions to the Plan
Both participants and the Company contribute to the Plan. A
participant may contribute to the Plan by electing to defer annually the
receipt of a portion of the compensation otherwise payable by the Company
in any plan year. This participant contribution shall be a fixed amount
or percentage of such compensation, but shall not exceed 20% of such
participants base salary, 50% of such participants annual bonus or 100%
of such participants directors' fees.
Both employee and matching Company contributions are to be made monthly
and invested in shares of Premier Financial Services, Inc. common stock.
The Company may, in its discretion contribute Premier Financial
Services, Inc. common stock, in an amount equal to the participants' and
the matching Company contribution. In 1994 all contributions to the
Plan were in the form of Premier Financial Services, Inc. common stock.
(c) Investments
Participant and Company contributions shall be invested in shares of the
Company's common stock, except the excess amounts that are insufficient
to purchase shares of Company common stock shall be held in cash until
such amounts are sufficient to purchase shares of the Company's common
stock. The investment in Premier Financial Services, Inc. common stock is
stated at fair value by readily available market quotations.
(d) Participant Accounts
Each participant's account is credited with employee contributions and
the matching company contribution. Dividends on shares of common stock
held in a participants' account shall be credited to such participants'
account. The benefit to which a participant is entitled is the benefit
that can be provided from the participant's account.
(e) Vesting
Employee contributions are fully vested at all times. Company matching
contributions shall invest on the date that is the earlier of (i) the
last day of the plan year that begins three years after the end of the
plan year in which such company contributions were made (ii) the date of
the participant's employment termination on account of death or
disability; (iii) the participant's retirement date or (iv) a change in
control of the Company, as defined.
(f) Withdrawals
Upon termination of service, a participant whose vested account value is
less than $5,000 will receive a lump sum amount equal to the value of
their account. Participants who have a vested account value greater
that $5,000 may elect to receive either a lump-sum amount equal to the
value of their account or equal monthly installments over a fixed period
of five, ten, or fifteen years depending upon the option chosen.
Early withdrawals of a participant's vested account balance are allowed,
subjet to a 10% penalty which is to be forfeited. Hardship distributions,
as defined, are allowed at the discretion of the Company.
A participants account shall be distributed in cash or common stock, at
the discretion of the Company.
(g) Expenses
Administrative expenses of the Plan are paid by the Company.
(h) Termination
Although it has not expressed any intention to do so, the Company has
the right under the Plan provisions to terminate the Plan. In the event
of termination of the Plan, the amounts then held in the participants'
accounts shall be 100% vested.
(i) Forfeitures
Forfeitures remain in the Plan and are used to offset future Company
contributions.
5
(2) Federal Income Taxes
The Plan is an unfunded nonqualified deferred compensation plan. All
plan assets are held as part of the general assets of the Employer. Any
earnings on plan assets are taxable to the Employer rather than the
Plan; therefore, no provision for income tax has been made.
6
Exhibit 23
Consent of Independent
Certified Public Accountants
The Board of Directors
Premier Financial Services, Inc.:
We consent to incorporation by reference in the Registration Statement on
Form S-8 of Premier Financial Services, Inc. of our report dated March 3,
1995 relating to the statement of net assets available for plan benefits
of Premier Financial Services, Inc. Senior Leadership and Directors Deferred
Compensation Plan as of December 31, 1994 and the related statement of
changes in net assets available for plan benefits for the period from
August 1, 1994 (commencement of operations) to December 31 1994, which
report appears of Form 11-K of the Premier Financial Services, Inc Senior
Leadership and Directors Deferred Compensation Plan.
KPMG Peat Marwick LLP
Chicago, Illinois
March 21, 1995
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